Report No.: 21609 IN - World Bank...Report No.: 21609 IN PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN ... Cost-Benefit Analysis Summary Annex 5. Financial Summary Annex 6. Procurement

Document ofThe World Bank

Report No.: 21609 IN

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED LOAN

IN THE AMOUNT OF US$450 MILLION

TO

POWER GRID CORPORATION OF INDIA LIMITED

(WITH THE GUARANTEE OF INDIA)

FOR A

SECOND POWERGRID SYSTEM DEVELOPMENT PROJECT

APRIL 29, 1998

Energy Sector UnitSouth Asia Region

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CURRENCY AND METRIC EQUIVALENTS(Rates as of March 31, 1998)

Currency Unit Rupee (Rs)Rs. 1.00 = Paise 100Rs. 39.5 = US$ 1.00I Kilovolt (kV) 1,000 volts (V)1 Kilowatt (kW) = 1,000 watts (W)1 Megawatt (MW) 1,000 kilowatts (kW)1 Gigawatt-hour (GWh) 1,000,000 kilowatt-hours

FISCAL YEARApril 1 - March 31

ABBREVIATIONS AND ACRONYMS

AC = Alternating CurrentADB Asian Development BankCEA Central Electricity AuthorityCERC = Central Electricity Regulatory CommissionDC = Direct currentDFID = Department for International DevelopmentEIB = European Investment BankESPP = Environmental and Social Policy and ProceduresHVDC High Voltage Direct CurrentICB = International Competitive BiddingIREDA = Indian Renewable Energy Development AgencyIPP Independent Power ProducerIPTC = Independent Power Transmission CompanyJEXIM = Export-Import Bank of JapanKfW Kreditanstalt fur WiederaufbauMOP Ministry of PowerNHPC = National Hydroelectric Power CorporationNTPC National Thermal Power CorporationOECF = Overseas Economic Cooperation FundPIP = Project Implementation PlanPFC = Power Finance CorporationPOWERGRID = Power Grid Corporation of India, LimitedSEB = State Electricity BoardUSAID = United State Agency for International Development

Vice President : Mieko NishimizuCountry Director : Edwin R. LimSector Manager : Alastair J. McKechnieTask Leader : Kari J. Nyman

INDIA


TABLE OF CONTENTS

Page No.

A. PROJECT DEVELOPMENT OBJECTIVE ............................................................. 2

1. Project development objective and key performance indicators .............................................................2

B. STRATEGIC CONTEXT ............................................................. 2

1. Sector-related CAS goal supported by the project ........................................................... 22. Main sector issues and Government strategy ............................................................. 23. Sector issues to be addressed by the project and strategic choices ..........................................................34. POWERGRID's Development Program ............................................................ 4

4.1 Reform Program .............................................................. 44.2 Investment Program ............................................................. 8

C. PROJECT DESCRIPTION SUMMARY ............................................................ I 0

1. Project components ............................................................ 102. Key policy and institutional reforms supported by the project ............................................................ 143. Benefits and target population ............................................................ 154. Institutional and implementation arrangements ............................................................ 15

D. PROJECT RATIONALE ............................................................ 1 6

1 . Project alternatives considered and reasons for rejection ............................................................ 162. Major related projects financed by the Bank and/or other development agencies ................................ 183. Lessons learned and reflected in proposed project design ............................................................ 184. Indications of borrower commitment and ownership ............................................................ 205. Value added of Bank support in this project ............................................................ 20

E. SUMMARY PROJECT ASSESSMENTS ............................................................ 21

1. Economic Assessment ............................................................ 212. Financial Assessment ............................. 223. Technical Assessment ............................. 234. Institutional Assessment ............................. 235. Environmental and Social Assessment ............................. 236. Participatory approach ............................. 25

F. SUSTAINABILITY AND RISKS ...................... 25

1. Sustainability ....................... 252. Critical risks ....................... 263. Possible controversial aspects ....................... 27

G. MAIN LOAN CONDITIONS ....................... 28

1 . Effectiveness conditions ....................... 282. Other ........................ 28

H. READINESS FOR IMPLEMENTATION....................................................................................... ...... 30

ANNEXES

Annex 1. Project Design SummaryAnnex 2. Detailed Project Description

Annex 2A. Eastern Region System Coordination and Control ProjectAnnex 2B. Western Region System Coordination and Control ProjectAnnex 2C. East-North Interconnector I ProjectAnnex 2D. East-South Interconnector II ProjectAnnex 2E. East-North Interconnector II and East-West Interconnector I Projects

Annex 3. Estimated Project CostsAnnex 4. Cost-Benefit Analysis SummaryAnnex 5. Financial SummaryAnnex 6. Procurement and Disbursement Arrangements

Table A. Project Costs by Procurement ArrangementsTable Al. Consultant Selection ArrangementsTable B. Thresholds for Procurement Methods and Prior ReviewTable C. Allocation of Loan Proceeds

Annex 7. Project Processing Budget and ScheduleAnnex 8. Documents in Project FileAnnex 9. Statement of Loans and CreditsAnnex 10. Country at a Glance

ADDITIONAL ANNEXES

Annex 11. Bulk Power Tariff Reform and the Framework for Power Trading in IndiaAnnex 12. Eligibility Criteria for Additional ProjectsAnnex 13. POWERGRID's Environmental and Social Policy and Procedures (ESPP)

Project Appraisal Document Page 1INDIA POWERGRID 11

INDIA

SECOND POWERGRID SYSTEM DEVELOPMENT PROJECT (POWERGRID II)

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA REGION

Date: April 29, 1998 Draft X FinalTask Leader: Kari J. NymanCountry Director: Edwin R. Lim Sector Manager: Alastair J. McKechnieProject ID: IN-PE-35173 Sector: Power Project Objective Category: [XI NOLending Instrument: Specific Investment Loan Program of Targeted Intervention: [XI NO

Project Financing Data X Loan [] Credit [ Guarantee [ Other I

For Loans/Credits/Others:Amount (US$): 450 millionProposed Terms: Multicurrency [ Single currency US$ [XI

Grace period (years): 5 years Standard Variable [ ] Fixed [ LIBOR-based [X]Years to maturity: 20 yearsCommitment fee: 0.75%

Service charge: NAFinancing plan (IJS$ million):

Source Local Foreign TotalGovernment - new equity 0 0 0POWERGR D - internal cash generation 1,723 0 1,723IBRD - ongoing operations (Ln. 3237-IN and 3577-N) 0 415 415Other Existing Loans and Bonds 80 422 502IBRD - proposed POWERGRID II 0 450 450

.................... ......................................................... I..................................................... ................................ ........... .................. ..................... ..............................

Other Loans under advanced processing 0 648 648Official Sources (new- proposed) . 0 977 977if .................... ................................................................................ ........................................................................................................ .......................................Commercial Borrowings (new - proposed) 200 . 772 972

Total Financing . 2003 3684 *5,687

Borrower: Power Grid Corporation of India Limited (POWERGRID)Guarantor: India, acting by its PresidentResponsible agency: POWERGRIlD......................................................................... ............................. ................. ................ ........................... ..................................................... ..........................Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004

............................. .................................. ........................... .......................... ................................. ........... lAnnual . 25 . 78 15S9 . 188 . 0Cumulativel 25 103 262 450 450

Project Implementation Period: Five (5) yearsExpected effectiveness date: July 31, 1998 Expected closing date: December 31, 2003


A: PROJECT DEVELOPMENT OBJECTIVE

1. Project development objective and key performance indicators (see Annex 1):

The project has been designed to continue Bank support to India's reform program for power transmission and systemoperations. Project Objectives are to: (a) assist India in restructuring the power transmission sub-sector, improvecoordination in power system operations, and promote inter-regional and interstate power trading through regulatory,tariff and institutional reforms; (b) support POWERGRID's institutional development and promote satisfactory financialand commercial performance and the implementation of POWERGRID's investment and commercial policy; (c) assistPOWERGRID in the development of modern system coordination and control facilities and reinforcement of itstransmission system towards a national grid; and (d) support POWERGRID in the facilitation of private investment in thepower sector and in its possible diversification into telecommunications.

India's reform program for power transmission and system operations has evolved gradually into a comprehensive andambitious set of reforms. POWERGRID was established in October 1989 as the National Power TransmissionCorporation (NPTC) to "move large blocks of power from central generating stations and surplus from state electricityboards, if any, to load centers with reliability, security, and economy." The corporation formally changed its name, on itsthird anniversary in October 1992, to the Power Grid Corporation of India, (and adopted the now well-knownPOWERGRID abbreviation), reflecting the emerging conclusions of intensive deliberations over its role in the Indianpower sector. In 1995, the Government of India formally assigned POWERGRID the additional responsibility tofacilitate private sector mega power projects ("Mega" in this context is broadly defined as large (minimum 1,000 MW) insize and serving more than one client and/or requiring inter-state transmission). Details of the reform program, andPOWERGRID's performance in its implementation, are given in Section B.4. Bulk power tariff reform and theframework for electricity trading in India is presented in detail in Annex I1.

B: STRATEGIC CONTEXT

1. Sector-related CAS goal supported by theproject (see Annex 1):

The project supports the CAS objectives of: (a) promoting private sector development; and (b) reducing infrastructurebottlenecks, for sustained rapid economic growth. The project supports POWE.RGRID's institutional development andhelps POWERGRID promote and leverage greater private investment. The project improves the regulatory, tariff andinstitutional environment for private investment in the power sector and promotes state power sector reform.

India, Country Assistance Strategy, Report No. 17241 -IN, dated December 19, 1997, was discussed by the Board onJanuary 15, 1998.

2. Main sector issues and Government strategy:

India's power system has grown steadily and its generation capacity has reached 86,000 MW. However, potentialdemand for electricity continues to outstrip available supply. Current shortages are estimated at about 10 percent ofenergy and 20 percent of peak capacity and are expected to grow in the years ahead due to insufficient investments in thefirst half of the 1990s and continuing inability to implement investment plans that would be required to close the powergap. Plant availability and efficiency are generally low and system losses are high throughout India's power distributionnetworks. Frequent power interruptions, uneconomic plant dispatch and wide variations in system frequency arecommon features in the operations of India's regional power systems. In the absence of adequate coordination andcontrol systems, transmission system inter-connections and bulk power pricing, trading and regulatory reforms, theregional power systems will not achieve their full potential in meeting the demand, and the grid discipline and plantdispatch will not improve towards efficient merit-order operations.


The financial performance of the sector as a whole is unsatisfactory, with no returns and no contribution to investmentfrom internal resources. Commercial losses of the State Electricity Boards (SEBs) have reached the equivalent of aboutUS$3 billion, or about one percent of India's GDP. The Government of India recognizes that its economic growth andsocial development targets will be threatened as long as the country's power supply constrains industrial developmentand the financial losses of the power sector remain a burden on the public sector finances. For example, in Haryana, statesubsidies amounted to 2.4 percent of GSP and over 2/3 of the fiscal deficit of the state in the last five years. India's stategovernments have clearly acknowledged the problems with state-run utilities in such national forums as Power Ministers'Conferences and a few states have initiated comprehensive reform programs.

The Government opened the power sector to private investment in 1991. Initially the emphasis was largely on generationthrough Independent Power Producers (IPPs), but the Government has since started to focus also on distributionprivatization, and transmission is expected to be opened for private participation in the near future. Recognizing thatactual investments remain constrained by the lack of creditworthiness of the client SEBs, the Government presses thestates to adjust their power tariffs and improve the performance of state utilities. The Government supports states willingto reform their power sectors inter alia by passing on external financing as fully additional to Central Plan Assistance(regular developmental assistance to the States of India), and by advocating sectoral reforms through national initiatives.Legislation has been processed for the establishment of independent regulatory commissions at the national and statelevels, inter alia in an attempt to depoliticize the tariff-setting process. The Government also promotes financialdiscipline of the SEBs through its central agencies, while simultaneously using them to: (a) augment power supplies (e.g.through the National Thermal Power Corporation (NTPC), the National Hydroelectric Power Corporation (NHPC), theNathpa Jhakri Power Corporation (NJPC); (b) improve system operations and develop power markets in a national gridsystem (POWERGRID); and (c) provide financing for state utilities (through the Power Finance Corporation (PFC) andfor decentralized renewable energy development (through the Indian Renewable Energy Development Agency (IREDA).

Other Government initiatives include the promotion of private sector mega power projects and power imports. Therationale of mega power projects is to introduce, with active facilitation by the Central Government and its agencies,large (1,000 MW+) projects into the power system, over and above the projects of IPPs supplying one state, andgeneration capacity additions by NTPC and other central generators, in an attempt to contain the power gap. The firstsuch project proposal is the proposed Hirma project (discussed in Section C. 1). Increasing attention is also being paid toexploring possibilities to import power from neighboring countries, from export-oriented hydro projects and temporarypower surpluses. The objective of these initiatives is to help ensure that reforming/creditworthy states are able toimprove their power supply. POWERGRID is one of the vehicles being considered to help implement these activities,and it already imports power from Bhutan.

3. Sector issues to be addressed by the project and strategic choices:

The project is an integral component of a program of Bank assistance designed to support the Government's power sectorstrategy, at the center and in reform-minded states. Bank assistance is designed to improve the performance and financesof the power sector and attract domestic and foreign private investments (through competition and/or under appropriateregulation) as the only sustainable means to meeting the sector's long-term investment needs. The Bank's powerprogram is focused on promoting state power reform, directly by supporting India's state power sector restructuringprogram, and through IREDA, NTPC, PFC, and POWERGRID.

The Orissa and Haryana Power Sector Restructuring Projects, for which Ln. 4014-IN and Ln. 4271-IN were approved inMay 1996 and January 1998, respectively, are the first two in a planned series of Bank loans to support India's statepower sector restructuring program. Dialogue on state-level sector reforms and preparatory work on restructuringprojects is underway in Andhra Pradesh, Karnataka, Rajasthan, and Uttar Pradesh. Several bilateral donors, includingCIDA, DFID, KfW, OECF, and USAID, support the program, in close coordination with the Bank. ADB is working withGujarat and Madhya Pradesh, and may support Assam, Punjab and/or West Bengal through PFC.


India's power transmission and system operations are going through an extensive national restructuring program (seeSection 4. below), in parallel with state-level reforms. The Government established POWERGRID to implement thisprogram, which is currently supported by the Bank under two ongoing operations. Further financing is proposed underthe proposed project. POWERGRID constructs and operates India's regional transmission systems and providestransmission service to generators and state utilities. In parallel, POWERGRID is developing modern systemcoordination and control facilities (including load dispatch systems for state utilities) and regional power pools. Thesefacilities and the emerging regional electricity markets will enable generators and utilities to improve the efficiency ofsystem operations and trade power under scheduled and unscheduled interchange arrangements, supplementing powersupplied under long-term Power Purchase Agreements (PPAs). Over time, POWERGRID will interconnect theseregional systems towards a national power grid. POWERGRID's efforts to facilitate power imports from neighboringcountries could also be supported.

4. POWERGRID 's Development Program

4.1. Reform Program

TiHREE-PHASE DEVELOPMENT

POWERGRID is implementing India's evolving and deepening reform program to restructure the power transmissionsub-sector, improve coordination in power system operations, promote inter-regional and interstate power trading,develop a national grid, and facilitate private investment in the power sector. POWERGRID started its operations as amanagement company in July 1991 and became a transmission utility in January 1993, when the primary legislation forthe transfer of the transmission assets, liabilities and staff was promulgated. Bank support followed immediatelythereafter, under the POWERGRJD System Development Project (POWERGRID I), for which Ln. 3577-IN wasapproved in March 1993. In line with the Government's reform program and the objectives agreed for POWERGRID atthat time, the development of POWERGRID into a national grid operator and transmission service company wasstructured under POWERGRID I into three overlapping phases:

* Phase 1, Consolidation and Operation of Regional Transmission Systems. POWERGRID has completedthe takeover of central sector and joint sector transmission lines and substations. POWERGRID now ownsand operates its system and has initiated programs for reinforcing and expanding its regional grid systemsand to meet the bulk power transmission needs of public and private sector generators, SEBs and theirsuccessor utilities.

* Phase 2, Development of Communication and Control Systems and Coordination of SystemOperations. POWERGRID has taken over the five Regional Load Dispatch Centers (RLDCs) from CentralElectricity Authority (CEA) as per program agreed under POWERGRID I. POWERGRID has completed astudy of improvements to bulk power and transmission tariffs and regulation and the implementation of theresulting action plan has started. POWERGRID has also initiated the development of modem systemcoordination and control facilities to replace the existing RLDCs and state Load Dispatch Centers (SLDCs)as quickly as possible to improve the operation of regional grids and facilitate power trading, as an operatorof loose power pools.

* Phase 3, Development and Operation of a National Grid. POVWERGRID would complete thedevelopment of the national grid and facilities for intensified inter-regional cooperation and coordination,and operate as a national grid company. A 500 MW North-West Interconnector is in operation, a 1,000 MWSouth-West Interconnector has just been commissioned, and a 500 MW East-South Interconnector I is underconstruction.

POWERGRID's establishment process also involved, during 1993-94, the transfers of the transmission components ofearlier Bank loans and IDA credits to NTPC (amounting to a total of about US$691 million) and a major inactive Bank

Project Appraisal Document Page 5INDIA POWERGRID II

lcan approved in 1990 to NHPC and CEA for the Northem Region Transmission Project (Ln. 3237-IN for US$475million). Along with the US$350 million Ln. 3577-IN, these transfers brought the Bank's total investment inPOWERGRID to about US$1.5 billion. At a time when the Bank stopped lending to the state electricity boards -POWERGRID's primary clients - this was an extraordinary statement of commitment to India's power sector.

POWERGRID I was designed to provide the foundation for POWERGRID's development and follow-up operations, byproviding for: (a) a transmission planning assignment; (b) design of future system coordination and control projects; and(c) institution building assistance, including institutional development and transmission planning assignments, bulkpower and transmission tariff and regulatory studies, and a utility collaboration arrangement with the National GridCorporation of England and Wales (NGC), for which financing was provided by the Bank loan and ADB and ODAgrants, respectively.

PAST PERFORMANCE AND ACCOMPLISHMENTS JUSTIFYING CONTINUING AND DEEPENING BANK SUPPORT

After initial difficulties in the early 1990s, POWERGRID's institutional growth has generally been remarkable.POWERGRID has consistently met or exceeded its annual performance targets set by the Ministry of Power (MOP) andhas just earned MOP's "Excellent Performance" rating for the fourth year in a row for FY97. Its role in India's powersector is now widely accepted and supported. Following Bank approval of Ln. 3577-IN in March 1993, POWERGRIDhas since secured financing from ADB, DFID (ex-ODA), EIB and OECF (soon from JEXIM as well), and from theBritish, French and Indian commercial markets.

POWERGRID has taken over transmission systems and projects of seven central and joint sector companies. It hasamalgamated staff coming from various organizations into a homogenous team. It has developed its management,financial and personnel systems, personnel policies and working regulations and procedures. It has taken over theRLDCs in accordance with the schedule agreed under Ln. 3577-IN. And it has put these facilities, as one of the world'slargest transmission utilities with over 27,200 circuit-km (ckm) transmission lines, to effective use with high systemavailability. Transmission service contracts have been signed with all clients. A study of bulk power and transmissiontariffs was prepared and an action plan is being implemented (details are given in Annex 11). POWERGRID is alsoinvolved in regional cooperation in the power sector in the Indian subcontinent, covering ongoing power imports fromBhutan and power exchanges with Nepal, as well as envisioned power exchanges with Bangladesh and power importsfrom Pakistan.

Three broad factors, namely: (a) effective management with reasonable operational autonomy; (b) competent andexperienced staff, with a continuing human resource development function; and (c) adequate financial support (mostnotably, the Bank's US$1.5 billion), explain POWERGRID's success. The temporary loss of effective management in1995-1996 led to a virtual paralysis of POWERGRID's Board of Directors. New top management appointments in 1996-97 restored the decision-making capability and the growth momentum was restored. The reconstitution of the Board isbeing completed with the appointment of three outside non-government directors and to secure the long-termeffectiveness and development momentum, it has been agreed that the Govemment will maintain POWERGRID's Boardof Directors with a least one-third non-government members.

The Bank has fairly consistently, with a few notable exceptions, rated POWERGRID's performance as "Satisfactory" interms of development objectives and implementation progress. However, these favorable overall ratings concealsubstantial variations in POWERGRID's performance, ranging from highly satisfactory to occasionally unsatisfactory ina few areas. The Bank has for the past two years rated POWERGRID's performance in transmission system developmentunder Ln. 3577-IN as "Highly Satisfactory". Rating under Ln. 3237-IN has for the most part been "Satisfactory", inview of persistent problems in the implementation of one large transmission project which remains in unsatisfactorystatus. Rating in system coordination and control projects under both loans has been as low as "Unsatisfactory", but hasbeen "Satisfactory" for some time, after POWERGRID overcame its initial difficulties in this area. Progress in theimplementation of the action plan for bulk power and transmission tariff and regulation reforms has also been slow, buthas improved to "Satisfactory" since late 1996 (discussed in Annex 11).


Government notification on new IPP tariffs, issued in June 1997, established that new IPPs are expected to move fromPlant Load Factor (PLF) to availability-based tariffs and from cost-plus to competitive selection and performance. Newtariff principles for POWERGRID were notified in December 1997. The notification authorizes POWERGRID to chargea 16 percent return on equity in existing and new assets, and provides financial incentives to improve the availability andoperations and maintenance practices of its transmission system to earn an even higher return on equity. The nextchallenge is the introduction of availability-based bulk power tariffs to existing central sector generators (most notably toNTPC's 16,800 MW) and related new trading arrangements (including a frequency-linked pool rate for unscheduledinterchanges) in regional power pools. A tariff notification, satisfactory to the Bank, applying availability-based bulkpower pricing principles in the Southern region, is an agreed condition of loan effectiveness.

PRIVATE SECTOR PARTICIPATION IN TRANSMISSION

The Government is pursuing private investment in transmission through legislative/regulatory reforms, inter alia toenable POWERGRID to implement some of its future projects through private sector ventures. The required legislationwas promulgated as an Ordinance in January 1997, but could not be discussed in the next session of the Parliament, andthe Ordinance lapsed. Anticipating approval of the legislation, the Government established in early 1997, a committee torecommend the preferred implementation approach for private participation. The Sankaraguruswamy Committee, sonamed after its leader, submitted its report in July 1997, recommending BOOT-type private ventures, where anindependent power transmission company (IPTC) builds, owns, operates and maintains, and ultimately transfers thetransmission facility to the contracting primary transmission utility. Project selection would be made by the concernedprimary transmission utility - POWERGRID at the national/regional level, SEBs/successor grid utilities at the state level.An IPTC would operate in accordance with the instructions of the concemed RLDC (national/regional level) or state loaddispatch center. The Parliament's Standing Committee has endorsed the Private Transmission Bill and theSankaraguruswamy Committee report, and the Bill is expected to be considered by the new Parliament in the course of1998. POWERGRID intends to execute some of its future projects through IPTCs to implement its investment programand manage its finances. POWERGRID does not intend to take any equity positions, preferring 100 percent privateownership of such transmission companies, with sponsors selected through competitive bidding, in line with therecommendations of the Sankaraguruswamy Committee. Provision for supporting POWERGRID's joint ventureinvestments has therefore been dropped from the scope of items for which Bank financing could be considered under theproposed POWERGRID II loan.

PRIVATE SECTOR PARTICIPATION IN POWERGRID

The Government's Disinvestment Commission reviewed private sector participation in POWERGRID in 1997. TheCommission recommended against disinvestment/equity issues by POWERGRID with the following conclusions: (a)POWERGRID is the national transmission carrier operating in an extremely strategic area of infrastructure activity andtherefore it is a core public sector undertaking; (b) until sectoral reforms at the state level are in place and the powersystem is given proper commercial and market orientation, POWERGRID may not be able to attract the right kind ofinvestor response; and (c) premature disinvestment might result in considerable undervaluation of the shares, (given thecomplexities of SEB-POWERGRID relations and the weak overall financial position of most SEBs). The Commissionexpressed that the requirements of the transmission sector in the short to medium term should therefore be taken care ofby POWERGRID and the implementation of selected transmission projects through BOOT arrangements. Theserecommendations are consistent with those made by the Sankaraguruswamy Committee on private sector participation intransmission in general. The Sankaraguruswamy Committee maintains that transmission entities are natural monopolies,which should function and be seen to function as neutral agencies between generators and distributors, private and public,and should remain in the public sector, apart from special segments identified for implementation by IPTCs as discussedabove.

Privatization of POWERGRID is not a priority item in the Indian power sector. Priority is on distribution privatizationand state power reform, which in turn will trigger private generation investments in India. The main financial motivationfor the acceleration of the introduction of private equity would be to raise funds for the Government (not primarily to


raise additional equity capital to POWERGRID for the time being as it is adequately capitalized). For POWERGRID,perhaps more importantly (in the near term), privatization might help introduce the latest management practices, increaseoperational autonomy and speed up decision making. Increased autonomy would inter alia facilitate faster investmentdecisions, which in the Bank's experience have sometimes been delayed by months after the required technical work andevaluations/ recommendations are finalized. In a sector where substantial private investment is expected, and in aneconomy where growth in industries and telecommunications will offer high quality employees new opportunities,POWERGRID will find it increasingly difficult to attract and retain well-qualified staff, being constrained by standardpublic sector terms and conditions. For these reasons, private sector participation in POWERGRID has been discussedand dialogue will continue on the initial Government disinvestment in POWERGRID, though immediate corporate-levelaction can not be expected in view of: (a) the Disinvestment Commission's and the Sankaraguruswamy Committee'srecommendations; and (b) POWERGRID's own preference to contract IPTCs to execute some of its future projects tohelp implement its investment program and manage its finances rather than seek additional equity.

RELATED REGULATORY REFORMS

Following the enactment of the Orissa Electricity Reform Act by the Orissa State Assembly in November 1995 andagreements reached in two successive Power Conferences of the Chief Ministers of India in late 1996, the Governmenthas developed legislation for the establishment of a Central Electricity Regulatory Commission (CERC) and StateElectricity Regulatory Commissions (SERCs). This was a complex and demanding undertaking, inter alia in view ofpower being a concurrent subject in India's constitution, the need to provide for the reforming states and theircomprehensive reform legislation so as not to inadvertently undermine the reforming states, and sensitivities of affectedagencies including CEA. An Ordinance was promulgated by the Government on April 25, 1998 and is expected to beplaced before the Parliament in the next session.

Once established, CERC would inter alia assume the responsibilities of CEA and MOP for the determination andapproval of tariffs for central sector utilities including NTPC and POWERGRID, and the licensing and tariffreview/setting of multi-state IPPs and multi-state transmission companies such as POWERGRID's envisioned IPTCs.Given the extraordinary delays being experienced in the process of CEA/MOP tariff setting, the establishment of CERCis expected to result in a significant improvement to the pace of the process. At the state level, SERCs would, at aminimum, similarly assume the responsibilities of SEBs and their respective state governments in the setting of retailtariffs. In states unable/unwilling to pursue comprehensive reform and restructuring, such nationally "mandated" tariffcommissions could have a significant impact in depoliticizing tariff-setting - provided the SERCs are properlyestablished and allowed to become truly independent, a condition not likely to be readily met in all states.

POWERGRID's DIVERSIFICATION INTo TELECOMMUNICATIONS

A number of power utilities around the world are diversifying their operations into telecommunications. They includethe National Grid Company of England and Wales, Hydro-Quebec in Canada, and IVO of Finland. POWERGRID'sexposure to their systems and the ongoing liberalization in India's telecommunication sector has led POWERGRID toconsider its possible role in the development of telecommunications in India. As a national grid company, with a nation-wide network with rights-of-way readily available, POWERGRID is strategically placed to install and provide long-distance telecommunication facilities and service at a competitive price. POWERGRID is already executing systemcoordination and control projects in two regions and is about to launch similar projects in the other three regions. Withthese projects, POWERGRID staff are gaining experience in modern communication systems and the use of optical fibrecables, and starting in 1994, has installed optical fibre ground wire (OPGW) on selected transmission lines.

In September 1997, the Cabinet Committee on Infrastructure decided that: (a) an environment be created in whichprivate service providers can provide internet services on demand and at reasonable rates; (b) the Department ofTelecommunications facilitate the provision of private data transmission services by allowing connectivity on itsnetwork; and (c) the infrastructure available with the railways and power transmission systems be utilized for quicklyestablishing the backbone for a national information infrastructure. Following this directive from the Government,


POWERGRID has prepared a preliminary plan to enter the telecommunications business, to implement in three phases, a6,500 km optical fibre network along power lines connecting the major cities and industrial centers, a synchronous digitalhierarchy (SDH) voice, data and video transmission system, at an estimated cost of about US$200 million. In monetaryterms, this would be only a modest addition to POWERGRID's investment program. International consultants will beengaged with Bank financing under the proposed project (or initially Ln. 3577-IN in case of unexpected delays inPOWERGRID II) to prepare a business plan and investment projects for POWERGRID's possible entry into thetelecommunications sector.

4.2. Investment Program

PAST PERFORMANCE

POWERGRID's progress in transmission system development has been significant. The capacity of the transmissionsystem has been increased from about 16,600 ckm in 1993 to about 27,200 ckm in 1997. This includes the completion ofall the transmission projects originally included under POWERGRID I, on schedule and below original cost estimates.Only one interconnection, 500 MW between the Northern and Western regions, existed in 1993. Since then, a 1,000 MWinterconnection has been completed between the Southern and Western regions, a 500 MW connection is underconstruction between the Eastern and Southern regions, and another 500 MW interconnection is about to go intoimplementation between the Eastern and Northern regions, under the proposed project.

POWERGRID has struggled with its Southern region system coordination and control project (funded under Ln. 3577-INand EIB cofinancing) as its Northern region system coordination and control project after its takeover from CEA (fundedunder Ln. 3237-IN and proposed JEXIM cofinancing), in spite of being assisted by leading international consulting firmsin this field. Both the prequalification phase and the first (technical) phase of the two-stage bidding took much longerthan anticipated. The second (price) phase went smoothly and POWERGRID has now awarded all the contracts for theirimplementation. These projects are technically and organizationally among the most complex and high-tech in powerdevelopment. A noteworthy feature of these projects is the involvement of the SEBs. Under a unified and coordinatedapproach, POWERGRID helps SEBs upgrade their SLDCs so that they can improve the operations of state systems andmore effectively participate in the operation of the regional grids. While POWERGRID operates the RLDCs, the SEB ortheir successor grid companies (such as the Grid Corporation of Orissa, GRIDCO) are responsible for dispatch within thestates (each state is a control area for power system operations). These regional projects therefore provide the requiredfacilities for both POWERGRID and the state utilities, and therefore provide for a three-tier coordination and controlfacility: SCADA at the field level and EMS at the state (dispatch) and regional (coordination) levels, and the requiredcommunications.

FUTURE INVESTMENTS

POWERGRID's FY98-2003 investment program builds upon the experiences gained over the past five years andcontinued rapid growth is envisioned, from about 27,200 ckm in 1997 to about 42,200 ckm in 2003 (10,600 ckm isalready under construction). The highlights of the program, summarized below, include: (a) the completion of regionalcoordination and control systems, and (b) the development of three high-capacity interconnections, at 3,000 MWbetween the Eastern and Northern region, at 2,000 MW between the Eastern and Southern regions, and at 1,500 MWbetween the Eastern and Western regions, together a significant step towards an interconnected national grid. Systemcoordination and control projects are POWERGRID's highest priority projects and essential for accomplishing itsmission to improve the coordination and efficiency of power system operations in India. These projects are alsoPOWERGRID's most complex and demanding investments. POWERGRID's core investment program includes systemcoordination and control projects for each of the five power regions. POWERGRID's program also includes othertransmission projects, to connect new power stations to the grid and/or to reinforce regional grids, and various powersystem improvement programs. One such program is being launched in the Northern region and a nation-wide programis under preparation.


System Coordination and Control investment 384 7 %.................................................................... .. .. ... . ... ... .. .... ..... ..... ... ... .... . .. ... .. .. . ... ... . . .. ......Transmission System Development investment 3,775 66 %Joint Ventures (POWERGRID's inputs) investment 36 1 %

..................................................................... ............................................................ t.................................................................. ..................POWERGRID's Other Investments investment 27 0.6%

Intitutional Development and Training capacity building j1 8 0.4 %Contingencies 1,447 25 %

Total . 5,687 100%

FINANCING OF THE INVESTMENT PROGRAM

The financing plan of POWERGRID's US$5.7 billion FY98-2003 investment program is summarized on page 1. Internalcash generation is projected to provide about US$1.7 billion. POWERGRID is adequately capitalized and does notimmediately need fresh equity inputs, therefore the focus for raising the balance is on debt financing. POWERGRID'srole in the power sector, its accomplishments and prospects, have been widely acknowledged by the financialcommunity. Following Bank approval of Ln. 3577-IN in March 1993, POWERGRID has since secured financing fromADB, DFID (ex-ODA), EIB, and OECF, as well as from the British, French and Indian commercial markets. Financingalready contracted amounts to about US$0.9 billion and financing in advanced stage of processing amounts to anotherUS$ 1.1 billion, for a total of about US$2.0 billion. Funding in advanced stage of processing includes the proposedUS$450 million POWERGRID II, proposed US$275 million equivalent JEXIM cofinancing for Ln. 3237-IN(negotiated), proposed US$335 million equivalent OECF loan (for the East-South Interconnector II, being processed inparallel with Bank support), and US$75 million equivalent DFID Grant to India for the East-North Interconnector I(approved in principle). This leaves a financing gap of about US$2.0 billion.

The US$2.0 billion financing gap need not be closed (funds contracted) immediately, but in accordance with the needs ofthe projects. Proposed time-slice lending by the Bank will enable POWERGRID to defer commitments further as projectsdo not need to be fully funded upfront. As shown on page 1, POWERGRID projects about $1.0 billion each from officialand commercial sources to complete the financing of its FY98-2003 investment program. The former includes a proposedUS$250 million ADB loan (expected by the end of 1998) for a program of nationwide system improvements,complementing those just initiated with expected JEXIM support in the Northern region. POWERGRID intends to raiseabout US$1.0 billion in commercial financing, from the domestic bond market, and from external capital markets through acombination of syndicated loans and suppliers' credits, to close the gap and complete the financing plan.

Mandate for POWERGRID's first external borrowing for this program, a US$50 million syndicated loan, was issued in late1997. The transaction has been deferred, at the recommendation of the organizer investment bank, in view of the recentdevelopments in the South-East Asian markets, but is expected to be reactivated and effected in the course of 1998.POWERGRID is in the process of selecting financial, legal and technical advisers for the transmission system for theenvisioned private power mega project (discussed below), which would account for the bulk of the commercial financingneeds of the six-year program. The Bank would be willing to consider support, under its partial credit guaranteeinstrument, to help POWERGRID raise commercial financing. Related financial considerations and safeguards arediscussed in Section D. 1. Further Bank lending to POWERGRID would be considered on time-slice basis, in accordancewith India's progress in implementing the program of national level sectoral reforms (outlined above), POWERGRID'sinstitutional development and growth, and its progress in the implementation of its investment program.


C: PROJECT DESCRIPTION SUMMARY

1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost)

POWERGRID II would support the implementation of the US$5.7 billion FY98-2003 time-slice of POWERGRID'sinvestment program (see Table in section 4.2 above for a summary) and inter alia is expected to help POWERGRIDimplement: (a) power system coordination and control facilities for the Eastern and Western regions; (b) transmissionsystem development, including inter-regional transmission links from the Eastern region to the Northern, Southern andWestern regions and related regional transmission system reinforcement programs; (c) technical assistance forinstitutional development and training, including promoting private sector participation in the power sector and assessingPOWERGRID's proposed diversification into telecommunications; and (d) the completion of similar facilities andactivities financed by the Bank under Loan 3237-IN for the Northern Region Transmission Project and Loan 3577-IN forthe POWERGRID System Development Project. The agreed eligibility criteria for Investment Projects for Bankfinancing under POWERGRID II are set out in Annex 12.

SYSTEM COORDINATION AND CONTROL PROJECTS FOR THE EASTERN AND WESTERN REGIONS

The coordination and control system projects for the Eastern and Westem regions have been appraised andPOWERGRID's Project Implementation Plans and environmental assessment reports have been approved by the Bank.These projects are technically and organizationally among the most complex and high-tech in power development. Theseregional projects provide the required facilities for both POWERGRID and the state utilities, and therefore provide for athree-tier coordination and control facility: SCADA at the field level and EMS at the state (dispatch) and regional(coordination) levels, and the required communications. Project descriptions are available in Annex 2.A and 2.B,respectively.

EAST-NORTH INTERCONNECTOR I

Subtransmission and distribution system development in India's Eastern region has not kept pace with generationexpansion and there is a substantial surplus of generation capacity at the moment. POWERGRID has accordinglyfocused on interconnections from the Eastern region in its program of national grid development. The 500 MW East-South Interconnector I is under construction, and ahead its 1999 commissioning, various temporary arrangements havebeen effected to initiate power transfers to other regions.

The 500 MW East-North interconnector I (the Sasaram HVDC back-to-back terminal and related transmission lines) isthe second major interconnection investment in the Eastern region. It has been appraised and POWERGRID's ProjectImplementation Plan and environmental assessment report have been approved by the Bank. Project description isavailable in Annex 2.C.

The DFID approved in principle in mid-1997 a grant to finance the HVDC terminal. After protracted deliberations onthe procurement arrangements, POWERGRID sought Bank support in April 1998. It has been agreed that the contractfor the HVDC component of the East-North Interconnector I will be awarded on the basis Bank ICB procurement. Incase the lowest evaluated bidder is a British supplier, it is expected that the contract would be funded under the DFIDgrant. In case a non-British Supplier is the lowest evaluated bidder (or the DFID funding cannot be utilized as currentlyenvisioned), the contract would be financed under the Bank loan.

EAST-SOUTH INTERCONNECTOR II

The 2,000 MW East-South transmission interconnector and related system reinforcements in the Southern region (theEast-South Interconnector II) has been prepared by POWERGRID and is being reviewed for possible Bank support underPOWERGRID II. A satisfactory Project Implementation Plan is available. However, this proposed Investment Projectcan be considered for Bank financing under POWERGRID II only after its environmental and social aspects have also


been reviewed and found satisfactory. In accordance with POWERGRID's Environmental and Social Policy andProcedures (ESPP), an initial environmental assessment report has been prepared (and has been found generallysatisfactory by the Bank), a detailed report is still under preparation. Project description is available in Annex 2.D.

Eligibility criteria set out in Annex 12 for the East-South Interconnector II include additional criteria, relating to theproposed Talcher power project (2,000 MW in four 500 MW units), from which power would be evacuated through theproposed East-South Interconnector II to its clients in the Southern region. The Talcher power project is being preparedby NTPC. The additional criteria make Bank financing for this proposed Investment Project subject to the Talcher powerproject having been prepared in accordance with environmental and, resettlement and rehabilitation stardards satisfactoryto the Bank. This environmental and social review is currently underway1 and the Talcher power project is under reviewfor possible Bank support in line with the India CAS.

EAST-NORTH INTERCONNECTOR II AND EAST-WEST INTERCONNECTOR I

The Consolidated Electric Power Asia Limited (CEPA) is developing a 3,960 MW pithead coal-fired power station (insix 660 MW units) in Hirma, Orissa. The Hirma project was conceptualized in early 1995, based on an MOU betweenCEPA and POWERGRID. The original project concept envisaged CEPA selling the power to POWERGRID, which wasto sell and transmit to various state electricity boards SEBs. In consultation with the Bank, the approach has beenmodified. POWERGRID's role is to be that of a facilitator and financially limited to bulk power transmission, withCEPA and client SEBs directly entering into power purchase agreements. The client states and their envisioned sharesare Haryana (500 MW), Punjab (960 MW) and Rajasthan (1,200 MW) in the Northern region and Gujarat (700 MW) andMadhya Pradesh (600 MW) in the Western region. POWERGRID would construct and operate the required transmissionsystem, involving high-capacity interconnections from the Eastern region to the Northern and Western regions. This isanother significant feature and major benefit of the Hirma project: it would facilitate major advances in POWERGRID'sprogram to develop and national power grid.

The 3,000 MW HVDC East-North transmission interconnector and related system reinforcements in the Northem region,and the 1,500 MW AC East-West transmission interconnector and related system reinforcements in the Western region(the East-North Interconnector II and East-West Interconnector I), have been prepared by POWERGRID. Thetransmission system is being reviewed by CEA for techno-economic clearance and by the Bank for envisioned fundingunder POWERGRID II. Approval for Bank financing would also be subject to its environmental and social aspectshaving been reviewed and found satisfactory. POWERGRID's report is under preparation in accordance with the ESPP.In accordance with the eligibility criteria set out in Annex 12, Bank financing would also be subject to financial closureof the Hirma project and the environmental and social aspects of the generation project having been found satisfactory bythe Bank. A detailed review is yet to start. Initial discussions suggests that CEPA is approaching these aspects in aresponsible manner 3. Project description of the East-North Interconnector II and East-West Interconnector I is availablein Annex 2.E.

I A draft Environmental Impact Assessment has been prepared by NTPC and its consultants and reviewed by the Bank. Revised EIA isunder preparation. No additional land is expected to be required for Talcher 11. Details of progress of RAP for Talcher have been provided, andprogress of the Action Plan for balance activities is under Bank review.

2 The generation project would be carried out by the Hirma Power Company (HPC), a private company which has been formed withunlimited liability under Indian law specifically to implement the project. HPC is wholly owned by CEPA which, in turn, is (since 1997) held by theSouthern Energy Inc. (SEI), which in turn, is a wholly owned subsidiary of the Southern Company (Southern). SEI is one of the largest independentpower producers in the world, Southern is the largest investor-owned electric utility in the United States.

3 Plant design is based on proven technology, and incorporates state-of-the-art environmental features including Flue-gas desulphurization(FGD), low NOx bumers and water cooling towers used to maximize water reuse. About 250 families reside on the site and would have to beresettled. Along with rehabilitation assistance and related local development, CEPA would pay the host state, Orissa govemment, a royaltysubmitted per annum per unit in operation.


POWERGRID is in the process of selecting financial, legal and technical advisers to help negotiate the transmissionservice agreement and advise in funding the transmission system. Three international consortia submitted proposals inmid-March. These services will be funded under the proposed project (or initially Ln. 3577-IN in case of unexpecteddelays in POWERGRID II). Among the many POWERGRID transmission issues to be examined and resolved are: (a)POWERGRID's liability in case of delay in construction or unavailability during operation of the transmission system:and (b) coordination of the preparatory work and financing arrangements, so that the generation and transmissionprojects are completed in coordination and in phases.

Subject to Government confirmation of its interest in a Bank partial risk guarantee, the Bank would be willing to considerguarantee support for the Hirma project, as additional support to the Bank's reforming state clients and POWERGRID.All five Hirma clients are in various stages of state power reform deliberations, Haryana and Rajasthan with the Bank,Gujarat and Madhya Pradesh with ADB, and Punjab reportedly with PFC. However, only Haryana is actuallyimplementing reforms, and therefore at the moment, the Bank's guarantee could only be considered for Haryana's andPOWERGRID's obligations. The potential availability of funding by the Bank for transmission associated with theproposed Hirma project is regarded to be desirable to help in part facilitate the further processing and financial closure ofthe Hirma project. CEPA's financial advisers have concluded that Bank Group support is essential for a project of thismagnitude to proceed to implementation in India.

THE COMPLETION OF ONGOING BANK-FINANCED PROJECTS

The proposed POWERGRID 11 also provides for the completion of: (a) regional power systems coordination and controlfacilities; (b) transmission lines and sub-stations; and (c) institutional development activities currently financed by theBank under Loan 3237-IN and Loan 3577-IN. About US$40-1 10 million of the proceeds of POWERGRID II would beused to finance the remaining activities under contracts originally awarded under Ln. 3237-IN for the Northern RegionTransmission Project and Ln. 3577-IN for the POWERGRID System Development Project, after their closing dates:

* Ln. 3237-IN was transferred in January 1994 to POWERGRID from its original executing agencies, CEA(the system coordination and control component) and NHPC (the transmission component). CEA and NHPChad made virtually no progress in project implementation since the approval of Ln. 3237-IN in June 1990and though Ln. 3577-IN was approved almost three years later in March 1993, the two projects are nowrunning in parallel. The original closing date of Ln. 3237-IN is September 30, 1998. Phase I and the 400 kVpart of Phase 2 of NRTP have been completed. The 800 kV part of phase 2 was expected to be completed bylate-1999, but it is delayed due to extraordinary problems being experienced by the contractor, mostly withits subcontractors. Its completion has slipped to mid-2000. Phase 3 is under implementation in a satisfactorymanner and is expected to be completed in mid-1999. The Northern region system coordination and controlproject is scheduled to be implemented in stages, the Bank-financed telecommunication component bySeptember 2000 and the JEXIM-financed EMS/SCADA component by January 2002 (see Section B.4.2). A3.5 year extension would be required to finance the project through completion under Ln. 3237-IN. Insteadof such extensions - which could in principle be justified as the project was delayed by about three yearsupon its transfer due to reasons beyond POWERGRID's control - it is expected that Ln. 3237-IN would beclosed by September 30, 1999 at the latest, and the remaining activities under the NRTP would be financedunder POWERGRID 11; and

* The original closing date of Ln. 3577-IN is June 30, 2000. The original transmission component of Ln.3577-IN has been completed, the additional component approved for Bank financing in December 1996 isahead of its March 2000 completion. However, the Southern region system coordination and controlcomponent is expected to be completed only by January 2002. A 1.5 year extension would be required tofinance the project through completion. Instead of such extensions - which could in principle be justified inview of the nature of the system coordination and control projects (see Section B.4.2) - Ln. 3577-IN wouldbe closed and the remaining activities would be financed under POWERGRID II.


THE COST OF THE ABOVE FIVE INVESTMENT PROJECTS

The total financing required for the Eastern and Western region control systems and the East-North Interconnector Iamounts to about US$400 million, and East-South Interconnector II about US$850 million, for a total of about US$1.3billion. The total financing required for the East-North Interconnector II and East-West Interconnector I amounts toabout US$1.8 billion. As discussed above, decision is pending on the proposed one-year extension of Ln. 3237-IN toSeptember 30, 1999 - the US$40 million figure in the table below is premised on such an extension, without anextension, US$110 million would be required for the completion of ongoing Bank-financed projects.

......... ....... . .. .... ',}). X,, - .. .

System Coordination and Control Projects 1860-100DEast-North Interconnector I 157 30-105East-South Interconnector II 850 0-275East-North Interconnector II and East-West 1,643 0-320Interconnector lContracts from Ln.3237-IN & Ln..3577-I 40-110Additional Investment Projects 0-320

Total and Bank under POWERGRID II 2,818 450

ADDITIONAL INVESTMENT PROJECTS

POWERGRID may submit other Investment Projects for Bank consideration for financing; the agreed project eligibilitycriteria for such projects are set out in Annex 12. Three possibilities have been discussed, namely transmissionassociated with NTPC's proposed gas-based power station expansions, transmission for international powerimports/exchanges, and POWERGRID's diversification into telecommunications:

(a) NTPC is preparing a series of four 650 MW projects, to expand the capacity of its existing gas-firedpower stations at Kawas and Gandhar in the Western region and Anta and Auraiya in the Northernregion. This 2,600 MW power development is linked to the envisioned import of LNG. POWERGRIDhas indicated that it may approach the Bank to help finance the associated transmission development. Inview of the need for the Bank to review the related generation projects, the Bank could accommodatesuch requests much better if the Bank would also be involved in the financing of the generation projects,so as to have a proper direct working relationship with NTPC. POWERGRID has no control over theseor any other generation projects.

(b) Proposals for Bank assistance for funding transmission facilities for power imports/exchanges withneighboring countries may also be submitted by POWERGRID to the Bank under the proposed project.POWERGRID would have to closely coordinate such projects with the neighboring country utilities,which would provide complementary transmission - POWERGRID is not expected to implementprojects in the territory of another country; and

(c) Diversification into telecommunications is under consideration. Investments may be included in theinvestment program following an assessment by international experts (discussed in the last two paras. ofSection B.4.1) and may be submitted for Bank consideration.

Projects for transmission for international power imports/exchanges and telecommunications, if any, will have to coveradditional features and safeguards, beyond the standard criteria set out in Annex 12, and it has been agreed that theywould be processed on a case-by-case basis (rather than attempting to prepare an exhaustive list of appraisal criteria atthis time). Such features include the possible role of POWERGRID beyond transmission, as the Government andPOWERGRID envision that POWERGRID might become the purchaser and reseller of imported power in special cases -


Bank concurrence would be required in such cases (see Section G.2) - and the approach and scope of POWERGRID'sinvolvement in providing telecommunications service.FINANCIAL SAFEGUARDS

The time-slice approach subjects the projects that are approved for implementation, to the risk of subsequent funding forwhatever reason not materializing. Agreements confirmed at negotiations include requirements: (a) obligatingPOWERGRID to complete such Investment Projects; and (b) obligating the Government of India to make arrangements,satisfactory to the Bank, to provide POWERGRID or cause POWERGRID to be provided with necessary funds shouldenvisioned additional Bank funding not materialize. These provisions are unlikely to be exercised, as explained below.

At the time of POWERGRID II, POWERGRID's actual core investment program - that is, projects confirmed forimplementation - is well below the appraised US$5.7 billion program, at "only" US$3.2 billion. This program is fullyfinanced with the approval of POWERGRID II and finalization of agreements for the DFID Grant. At the time ofapproval of the US$0.85 billion East-South Interconnector 11 for Bank financing, POWERGRID and the Bank wouldreview the status of envisioned OECF cofinancing. At the time of approval of the US$1.65 billion East-NorthInterconnector II and East-West Interconnector I for Bank financing, it is expected that there will be a direct link betweenfinancial closure for CEPA and funding of related transmission - in case there is a funding gap in the transmissioncomponent, the generation project is unlikely to achieve financial closure, and without financial closure of generation,POWERGRID will not make significant expenditures on the associated transmission. POWERGRID and the Bankwould review the progress of the major reform elements, the bulk power tariff action plan and the two bills, to assessprogress towards the envisioned POWERGRID III. As discussed above, POWERGRID is in the process of selectingfinancial, legal and technical advisers to help negotiate the transmission service agreement and advise in funding thetransmission system.

2 Key policy and institutional reforms supported hy the project:

The project supports: (a) bulk power and transmission tariff and regulatory reforms; (b) the opening of powertransmission to private investment; and (c) POWERGRID's institutional development, including promoting private sectorparticipation in generation and transmission and assessing POWERGRID's proposed diversification intotelecommunications.

POWERGRID's regional system coordination and control projects are critical to POWERGRID's corporate mission toimprove the coordination and efficiency of power system operations and develop regional power markets. However,these coordination and control systems and transmission inter-connections - and the mega power projects of NTPC andIndependent Private Producers - will achieve their objectives and the efficiency of power system operations in India willimprove only if the bulk power pricing and trading structures are conducive to efficient merit-order operations.Implementation is discussed in Annex 11. Government notification on tariff policy for new IPPs was issued in mid-1997. It established that new IPPs are expected to move from Plant Load Factor (PLF) to availability-based tariffs andfrom cost-plus to competitive selection and performance. Bulk power tariff reforms are being introduced for existingcentral sector generators, starting in the Southern region as an agreed condition of loan effectiveness. The current targetschedule for introducing such tariffs across India is January 1999. This is an aggressive schedule, particularly for theNorthern region where slippage to mid-to-late 1999 may well occur. The continued implementation of the program bythe Government of India, in a manner satisfactory to the Bank, is an agreed loan covenant.

Substantial progress has been achieved by the Government in regulatory reforms relating to the overall power sectorregulation at the national and state levels and private transmission. These reforms are discussed in Section B.4. 1.Complete draft bills for both initiatives have been prepared and consultations have been conducted with a number ofstakeholders. Both bills are expected to be enacted in the course of 1998, and the CERC could be established in mid-1999 - well before the June 2000 mid-term review of POWERGRID II (key performance indicators to be assessed atmid-term review are set out in Annex 1).


POWERGRID has the capability to diversify its financing sources and raise an increasing share of its funding from thecapital market, as it develops further and establishes itself as an autonomous commercially-viable utility.POWERGRID's financing plan is ambitious and projects a 1:1 ratio of official and commercial financing in closing thefinancing gap of the current investment program (Section B.4.2). This diversification process will be a long one, hencethe envisaged continued Bank support, but the process has been started during the preparation of POWERGRID II with:(a) notifying in December 1997 the long-awaited 16 percent return on equity in POWERGRID and related performanceincentives; and (b) the reconstitution of POWERGRID's Board of Directors with the addition of three outside directors toPOWERGRID's Board. Further progress would be expected during the implementation of POWERGRID II, in partfacilitated by the expected legislative changes and regulatory reforms for private transmission and an independentregulatory commission at the center.

3. Benefits and target population:

The project supports POWERGRID's institutional development, facilitates private investment and promotes competitionamong generators and sector reform among their client states. Project investments will help POWERGRID improve theefficiency of power transmission and system operations, reinforce its transmission system and develop regional powermarkets. Improved coordination and power transmission and trading within and across regions - possibly across nationalborders as well - will help reduce generation costs, system losses and unserved energy, and improve system stability andreliability. The direct beneficiaries are POWERGRID's clients, namely generating companies (including NTPC andCEPA), state electricity boards (SEBs) and other state-level utilities (such as GRIDCO in Orissa). The ultimatebeneficiaries are the retail clients of India's distribution utilities, i.e. the electricity consumers across India.Telecommunication service providers are potential direct beneficiaries of POWERGRID' s proposed diversification intotelecommunications, the ultimate beneficiaries would be their retail customers, i.e. the users of voice and datacommunications and internet services.

POWERGRID II is not directly targeted to the poor, but it is consistent with the Bank's poverty reduction efforts inIndia. Poverty reduction is fundamentally dependent on growth and employment, India's direct poverty alleviationinterventions notwithstanding. The key contribution of the project to the poor is to ease the power supply bottleneck toeconomic activity and growth. Containing the chronic gap between power demand and supply will directly benefitelectricity consumers. Industrial consumers in particular will benefit from the improved quantity, quality and reliabilityof their power supply, since they account for the majority of electricity consumption in India and bear the brunt of loadshedding and other failures of supply. This is in line with national surveys where industrialists consistently rate powersupply as one of their most critical constraints. By improving power supply, the project will help contain one of the mostserious constraints to industrial activity and higher economic growth in India.

4. Institutional and implementation arrangements:

Implementation period: 1998-2002 (Indian fiscal years 1998 to 2003).

Executing agencies: POWERGRID would implement the project, with the assistance of consultants for the coordinationand control systems. Installation and erection works would be carried out by local and foreign contractors engagedthrough international competitive bidding.

Major works contracts would provide for Dispute Resolution Boards (DRBs) for the settlement of disputes which the twoparties are unable to settle, as a faster and cost effective step prior to full-scale formal arbitration. POWERGRID's initialperformance in utilizing a similar arrangement (dispute resolution panel, DRP, the difference being the composition ofthe members) to address problems and accelerate implementation of the Moga-Kishenpur project (delayed by over 12months) under Ln. 3237-IN has to be characterized as disappointing, but the DRP has since late 1997 become very activeand productive, and has helped improve the cooperation of POWERGRID and the contractor. However, the outlook forthe completion of the line remains uncertain.


Project coordination: POWERGRID would coordinate the project, with the assistance of consultants for thecoordination and control systems. Consultants who have assisted POWERGRID in the Northern and Southern regionprojects are about to be engaged, after a standard selection process conducted under Bank guidelines, also for the Easternand Western region projects.

Project oversight (policy guidance, etc.): Ministry of Power (MOP) and Ministry of Finance (MOF) are the two keyministries for sectoral policies for power. The Central Electricity Authority is responsible, inter alia, for sector planning,techno-economic project clearances and tariff formulation. The proposed Central Electricity Regulatory Commission(CERC) is expected to take over the tariff formulation and notification functions of CEA and MOP, respectively, duringproject implementation.

Financial Accounting and Reporting: POWERGRID operates a commercial accounting system in accordance withIndia's Companies Act, 1956. POWERGRID is an existing client of the Bank and is familiar with the Bank's financialaccounting and auditing requirements. Sufficient and qualified staff are engaged. The existing budgeting, accounting,internal control, and auditing systems are considered adequate. POWERGRID nevertheless intends to upgrade theexisting accounting software to enable POWERGRID management to obtain faster and quicker response to managementqueries, and facilitate more effective project monitoring.

Auditing: Project Financial Statements would be audited annually in accordance with standards on auditing acceptable tothe Bank by an independent auditor. The audit of project accounts would include an assessment of the adequacy ofaccounting and internal control systems, ability to maintain adequate documentation for transactions, and eligibility ofexpenditures for Bank financing. The audited Project Financial Statements together with the auditor's opinion on itwould be submitted to the Bank not later than six months after the close of each fiscal year. The audit report on SpecialAccount (SA), maintained exclusively for the project, would include a summary of SA transactions and the closingbalance held by the Bank. The audit report on SA would be submitted to the Bank not later than six months after theclose of each fiscal year. These arrangements are working in a satisfactory manner under the ongoing operations andwould continue under the proposed project.

Monitoring and evaluation arrangements. POWERGRID would submit to the Bank, monthly reports on billing andcollection, quarterly progress and financial management reports, audited financial statements within six months of theend of each financial year, and such other information as the Bank may reasonable require. These arrangements areworking in a satisfactory manner under the ongoing operations and would continue under the proposed project.POWERGRID will carry out a mid-term review and report its findings and conclusions to the Bank by April 15, 2000,and will review them with the Bank by June 30, 2000. Annex I sets out the agreed key performance indicators. TheBank has fielded supervision missions 3-4 times per year and would continue close field monitoring of POWERGRID'sinstitutional growth and development also during the implementation of POWERGRID 11.

D: PROJECT RATIONALE

1. Project alternatives considered and reasons for rejection:

Given the nature of POWERGRID's operations as a transmission service company, a major part of its investments islinked to various generation projects in the public sector (including NTPC) and inter-state and/or inter-regional megaprojects of IPPs such as the proposed Hirma project. Therefore, both the size and the composition of the investmentprogram will inevitably undergo changes. POWERGRID has acquired the tools and has with the assistance of a leadingtransmission consultant (PTI of the United States) developed the necessary planning capability to respond to suchchanges. Time-slice lending approach is designed to provide POWERGRID with the necessary funding flexibility torespond to changes in its investment program, more in line with commercial financing and better complementingPOWERGRID's continuing conventional funding arrangements from other donors. POWERGRID has demonstrated,through its generally satisfactory performance in the implementation of its investment program in the past, to be capableof handling Bank financing on this basis. POWERGRID's balance sheet is sound and financing plan is considered


feasible for time-slice lending (Section B.4.2). Financial safeguards have been built in but are not expected to berequired (end of Section C.l).

POWERGRID II has been prepared as a time-slice operation. The main alternatives to time-slice lending would havebeen a conventional very large investment operation or a parallel series of loans, with pre-selected components all fullyappraised prior to loan approval and fully funded through completion under each loan. Under the time-slice approach,some but not all projects to be supported have been appraised prior to proposed approval of POWERGRID II, otherswould be prepared by POWERGRID during implementation and submitted for Bank approval in accordance with agreedcriteria (Annex 12 sets out the agreed criteria). It is envisioned that by the time POWERGRID II is fully disbursed, afollow-up loan would be in place to continue funding the program, including taking over disbursements under contractsawarded under POWERGRTD II (and under Ln. 3237-N and 3577-IN upon their closing dates). Running several loansin parallel, or one very large loan, would cost the client much more in commitment charges, result in slowerdisbursement and thereby tie up funds in the India country program, and reduce Bank leverage and overall operationalflexibility.

While the reform program might qualify for support under a SECAL instrument, India does not require balance ofpayment support, while POWERGRID requires significant volumes of investment financing. This readily explains thepreference for investment lending. Adaptable program lending (APL) instrument could in principle have been used. Along-term investment program is available and an ambitious national program of reforms and institutional developmenthas been prepared and could have been presented to justify APL lending. Given the still early stage of APL lending inthe Bank, the already significant expected use of APL in the Bank's India power program at the state level (for whichAPL is an ideal instrument), POWERGRID's very large investment program, including two exceptionally largetransmission systems for inter-regional interconnections, and required high level of Bank support, and the various factorsbeyond POWERGRID's - and even the Central Government's - direct control in the implementation of the reformprogram, taken together, led to the rejection of APL lending for POWERGRID.

India is embarking on an evolutionary path towards new approaches in power system operations and trading. Theresponsibility to facilitate that development and transition falls on POWERGRID. The responsibility to take advantageof the new opportunities falls on each individual utility and generator, and their responses and participation are mostlybeyond the direct control of POWERGRID. The Bank will consider further financial support to this program, beyondPOWERGRID II, on the same time-slice basis, in accordance with India's continued progress in sectoral reforms at thenational level, and POWERGRID's institutional development and growth and its progress in the implementation of itsinvestment program.


2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned)

IP DOBank-financed

POWERGRID's Establishment POWERGRID I (Ln. 3577-IN) S STransmission Investment Northern Region (Ln. 3237-IN) S SState Power Reform (underway) Orissa Power (Ln. 4014-IN) S SState Power Reform (approved) Haryana Power (Ln. 4271 -IN) S SState Power Reform (planned) Follow-up operations (e.g.

Andhra Pradesh, Karnataka,Rajasthan, etc.)

Commercialization of NTPC NTPC I (Ln. 3632-IN) S SPrivate Sector Participation through NTPC NTPC II (proposed guarantee)Renewable Energy Development IREDA I (Ln. 3544-IN) and S S

IREDA IIOther external development agencies

POWERGRID's Transmission Investments ADB, DFID, EIB, JEXIM, OECF(underway and planned) assistance to POWERGRIDState Power Reform (underway and planned) Japan PHRD Trust Funds

DFID Sector Grant to OrissaADB's planned Power Loans toGujarat, Madhya Pradesh andPFC KfW's proposed support toHaryana, Rajasthan, AndhraPradeshOEFC and JEXIM supportCIDA, USAID TA support

Renewable Energy Development (underway ADB support to IREDA, KfW'sand planned) planned Solar Power Loan to

Rajasthan

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in proposed project design:

During the 1980s and early 1990s, the Bank Group followed a three-pronged strategy in power: (a) it provided extensivesupport to Central Government owned agencies; (b) it financed a number of SEBs; and (c) it financed existing privatepower utilities and encouraged the Government to lower entry barriers for new investors. During the period FY84 toFY93, loans totaled US$8.15 billion. The success of this strategy was uneven, as discussed below. In summary,operations with central and private utilities were generally successful, but revitalizing institutionally and financially weakSEBs did not turn out to be feasible.

EXPERIENCE IN TRANSMISSION AND POWERGRID

The successful group of past Bank operations includes a number of transmission projects implemented by NTPC.POWERGRID's establishment process involved, during 1993-94, the transfers of the transmission components of earlierBank loans and IDA credits to NTPC (amounting to a total of about US$691 million) to POWERGRID. Also transferredwas a major Bank loan approved in 1990 to NHPC and CEA for the Northern Region Transmission Project (Ln. 3237-INfor US$475 million). Its original executing agencies, CEA (system coordination and control component) and NHPC (the


transmission component) had made virtually no progress in project implementation since the approval of Ln. 3237-IN inJune 1990 and though POWERGRID I (Ln. 3 577-IN) was approved about three years later, the two projects are nowrunning in parallel. Both projects are rated "Satisfactory" in terms of development objectives and implementationprogress. Implementation arrangements for the proposed POWERGRID II follow these now proven practices.

EXPERIENCE WITH SEBs

Beginning in the mid-i 980s, IBRD attempted to improve the performance of SEBs by direct involvement at the statelevel. This approach, involving close lending relationships with the SEBs, has generally been unsuccessful. Therevitalization of institutionally and financially weak SEBs did not turn out to be feasible. Projects failed to meetexpectations beyond the physical construction of facilities and the Bank was forced to take such strong measures assuspending disbursement and subsequently canceling loans. SEBs generally failed to respond to Central Governmentgenerated initiatives and there was no effective mechanism to enforce compliance or elicit their cooperation, even whenthey failed to pay for central sector electricity. It has become painfully clear that a sustainable solution to the sector'sproblems will have to focus on restructuring the state power sector rather than revitalization of the SEBs as attempted inthe past - the power crisis cannot be resolved through central and private sector generation capacity additions alone.These lessons led to: (a) the current state power sector reform program, including the promotion of privatization ofdistribution; and (b) the development of NTPC's and POWERGRID's investment and commercial policies.

The investment and commercial policies of POWERGRID (and those of NTPC, India's main generating utility) allowthem to shut off or restrict power and defer future investment if their clients (mostly SEBs) are in default of their bulksupply agreements. While the regulation measures have been used occasionally and while they have been generallyeffective, NTPC and POWERGRID have only seldom been able/allowed to regulate supply to their most significantdefaulter, the Uttar Pradesh State Electricity Board. However, they have deferred future investments. Most notablyNTPC has not proceeded with its 1,000 MW Rihand II project in Uttar Pradesh, in spite of the project having beenappraised and approved by the Bank in 1993. While these measures will not guarantee continued 100 percent billrealization by POWERGRID, past performance demonstrates that the build-up of large-scale arrears is unlikely.Covenants under existing loans and proposed POWERGRID II, and the preconditions of future Bank assistance, provideadequate remedies for the Bank should such situations arise.

EXPERIENCE WITH NTPC

Project completion reports and the Performance Audit Reports4 recognize the achievements and success of NTPC in thephysical aspects of project implementation. Despite delays in the pre-construction stages, NTPC generally completed theprojects on schedule and within budget, reflecting the strong project management capability it has developed. Qualitycontrol procedures introduced by NTPC helped improve the quality standards of power equipment supplied by Indianmanufacturers. NTPC has grown rapidly into a 16,800 MW generation company. As NTPC's operational performanceexceeds the SEB average by a wide margin and as NTPC now accounts for over one quarter of India's total electricitygeneration, NTPC's impact shows in power generation statistics as an overall sectoral improvement.

NTPC has experienced problems/delays in the implementation of some of the numerous activities in its EnvironmentalAction Plan (EAP) and R&R programs, particularly in the Singrauli area, agreed under the NTPC Power GenerationProject (Ln. 3632-IN) in 1993. Actions to improve these programs were agreed in mid-1997, including a Project SpecificAction Plan for NTPC in the Singrauli area. Following the first six-month extension of the closing date of Ln. 3632-INin September 1997, the Bank has continued to closely supervise the implementation of the agreed action plans and hasconcluded that satisfactory progress is being made to warrant another six-month extension. Agreement has been reachedwith NTPC on the specific steps to be taken in the next six months. Based on progress achieved in the next six months,the Bank will again take a view whether it is justified to further extend the loan closing date beyond September 1998.Further strengthening of NTPC's environmental and R&R management capabilities and the development a new andimproved corporate-wide resettlement and rehabilitation policy are under review and discussion with NTPC. A broader

4 The latest OED Performance Audit Report, No. 10854, was issued in February 1993. A new audit is currently underway.


action program is being developed for an envisioned Singrauli Regional Development Program. The ongoing Bankreview of the Talcher power project considers these lessons - and so will the forthcoming review of the Hirma project'senvironmental and social aspects.

4. Indications of borrower commitment and ownership:

POWERGRID's commitment and ownership of India's ongoing program of restructuring power transmission and systemoperations is prominently stated by POWERGRID officials in all public forums and well-documented in variouspublications, including POWERGRID's and MOP's most recent annual reports. It is also evidenced in POWERGRID'sperformance in the implementation of ongoing Bank-supported projects. This includes the successful reactivation of Ln.3237-IN, which was transferred in January 1994 to POWERGRID from its original executing agencies. CEA and NHPChad made virtually no progress in project implementation since the approval of Ln. 3237-IN in June 1990 and though Ln.3577-IN was approved about three years later, the two projects are now running in parallel. A major reform milestone inthe ongoing program of restructuring power transmission and system operations, the introduction of bulk power tariffreforms in the Southern region, is an agreed condition of loan effectiveness. POWERGRID has for several years nowbeen the most active proponent of such bulk power pricing and trading reforms. The development of the innovativefrequency-based pool rate mechanism for unscheduled interchanges, a critical element of the new power tradingframework discussed in detail in Annex 11, is attributable to an individual POWERGRID staff.

5. Value added of Bank support in this project:

The Bank has been closely involved in POWERGRID's development from the beginning of its operations. The Bankhelped the Government and POWERGRID define and crystallize POWERGRID's role in the sector, complete a complexprocess of transfers of transmission systems and projects, and related staff and liabilities, of seven central and joint sectorcompanies, and helped launch its institutional development. Envisioning a long-term relationship, POWERGRID I wasdesigned to provide the foundation for follow-up operations, by providing for: (a) a transmission planning assignment;(b) design of future system coordination and control projects; and (c) institution building assistance. Beyond directfinancing, POWERGRID credits the Bank for its catalytic cofinancing impact and the lead in supporting its institutionaldevelopment and related sector reforms. Private power policy and legal inputs to the preparation of the electricityregulatory commissions bill and private transmission bill and related technical work were funded under Bank-administered Japan trust funds. A major effort in the 1995-97 period was the development of POWERGRID'sEnvironmental and Social Policy and Procedures (ESPP) in close cooperation with the Bank. Current work is focused onbulk power tariff reform and legal/regulatory improvements. In the coming years, Bank support may also extend tofacilitating India's first multi-state IPP by helping finance the necessary inter-regional transmission service to theproposed Hirma project, and monitoring and support of the implementation of the ESPP in particular in the two verylarge transmission projects that are being prepared for Bank financing. The Bank's global experience will continue tohelp POWERGRID and India implement these and other aspects of the evolving and deepening reform program fortransmission system operations.

The Bank is working with NTPC on the environmental and social aspects of the Talcher power project, inter aliaincorporating lessons learned from the Singrauli area under NTPC I. Bank financing of the East-South Interconnector IIis in part linked to the success of that work. Through the proposed POWERGRID project, the Bank will get involved in asimilar review of the Hirma project. This will provide a unique opportunity to compare and cross-fertilize theapproaches and experiences of India's largest public utility and one of the world's leading IPPs, implementing similarpower projects at about the same time in close proximity of each other in the state of Orissa. The review of such largegeneration projects is a major undertaking from the Bank, but is proposed in view of their importance to powerdevelopment and state power reform. These two project would help India provide the kind of necessary and visiblesupply response that the reforming utilities need in order to be able to improve power supply to their consumers andmaintain and deepen reform momentum.


E: SUMMARY PROJECT ASSESSMENTS (Detailed assessments are in the project file, see Annex 8)

1. Economic Assessment (Annex 4): X Cost-Benefit Analysis :NPV=Rs 21.0 billion; ERR= 17.2 percent

India's power resource are concentrated heavily in the East (coal) and North-East (hydro), and their development fornational power development will require massive inter-regional transmission. Hydro can only be transported as electricalenergy and low-quality coal is better used locally and transmitted as power. Coordination and control systems and thenational grid enable India to take advantage of its energy resources for power development with efficiency and economy.As the regional systems get stronger and as inter-regional links are developed towards a functioning national grid, and asthe required coordination and control systems are built, power transfers become increasingly more feasible and viable.This facilitates competition in generation (generators seeking to supply performing clients) and promotes state powerreform (so that states can attract additional generation which they otherwise can not secure). POWERGRID'sdevelopment therefore is an essential complement to state power reform.

An Economic Rate of Return (ERR) was calculated on the basis of the incremental cost and benefit streams associatedwith the FYI 998-2003 time-slice of POWERGRID's investment program, covering all investments to be supported underthe proposed Bank loan. As was expected based on experience under POWERGRID 1, the ERR was established to besatisfactory at about 17.2 percent (in real terms), with conservative, tariff-based measures of the benefits ofPOWERGRID's operations. Tariff revenue is regarded as the minimum measure of actual benefits, since tariff revenuereflects only a portion of the total benefits of electricity supply (see Section C.3.).

POWERGRID's investment program for regional and inter-regional transmission facilities has been optimized to be leastcost in relation to India's national power generation expansion. Such facilities directly respond to the need of clientgenerators and their new projects and priorities, within India's overall least-cost generation expansion plan preparedperiodically by CEA. The most recent comprehensive report is CEA's March 1997 National Power Plan. The Talcherand Hirma power projects and the related transmission systems are included in this least-cost power development plan.

POWERGRID's system planning criteria have been reviewed by and refined in collaboration with leading internationaltransmission experts. Along with these services, modem planning tools (software and hardware and training) wereprovided under POWERGRID I in the course of 1994-95, and they are being used to facilitate and ensure thoroughanalysis of alternatives before final project designs are selected. Bank assistance is proposed to be provided under thetime-slice approach to enable POWERGRID to respond to this challenging environment (see section D. 1.).

The system coordination and control system projects are particularly attractive: their investments are recovered in a fewyears according to the estimates of POWERGRID's system coordination and control consultants. Only a fraction of theirbenefits are included in the time-slice ERR calculation, as the bulk of the benefits accrue to POWERGRID's clientutilities, POWERGRID collects only a service charge to recover its investments. International experience has confirmedthat coordination and control facilities are among the most essential and productive investments of power utilities.Annex 11 explains the link between these systems and India's transition to increasingly more sophisticated power pools.

Fiscal impact:

POWERGRID's fiscal impact is positive: (a) debt service inflows to the Government exceed the Government's outflowson POWERGRID; (b) fresh equity injections are not envisioned; and (c) taxes and duties paid by POWERGRID under itsinvestment program are significant, about US$900 million equivalent in the FY98-2003 period. POWERGRID is afinancially viable and profitable utility. With the recent tariff notification, the Government's equity investment inPOWERGRID now earns satisfactory returns. It is adequately capitalized and requires no additional Government equityin the project period. POWERGRID's paid-up equity and retained eamings amounted to about Rs 28.6 billion and Rs13.8 billion, respectively, as of March 31, 1997. The Government has been able to attract concessional financing,including grants, for POWERGRID's projects and onlend such funds to POWERGRID at more stringent terms. The


Government could get an additional contribution from POWERGRID in the future, if a disinvestment program werelaunched and put into implementation (which does not appear imminent).

2. FinancialAssessment (see Annex 5). NPV=Rs 23.8 billion; FRR= 18.4 percent (nominal)

The financial viability of POWERGRID's entire investment program is attractive and robust, with an FRR of about 18.4percent (in nominal terms, Annex 4), in excess of POWERGRID's estimated cost of capital at 13.5 percent (in nominalterms). Changes in the costs and/or implementation schedules of the individual components of the program do notsignificantly affect the economic and financial viability of the present time-slice. POWERGRID does not require majoradjustments in the level of its existing tariffs and the viability of its investment program is accordingly not dependent onsuch adjustments. Foreign exchange risk (external borrowings, domestic sales) is passed on to the clients under thetransmission tariff system. The main financial risk remains the bill collection and related delays and retroactiveapplication of tariff notifications, as explained below.

POWERGRID's has complied with covenants in a satisfactory manner, with the exception of accounts receivable. Thisgeneral statement also applies to the financial year completed in March 1997 and in addition, POWERGRID recoveredits current bills fully in FY97. These are remarkable achievements in the Indian power sector. The submission ofaudited financial statements and reports, investment plans and financial projections, and related quarterly and monthlyinformation, has also been satisfactory. POWERGRID's current investment plan and latest financial projections,(summarized in Annex 5) demonstrate that POWERGRID can be reasonably expected to comply with the agreedcovenants, with the possible exception of accounts receivable, also in the next few years. Although current bill collectionis under control and commendable at 100 percent, given the poor financial position of many of its clients, it is likely thatPOWERGRID will experience problems with some of its clients in the coming years. The existing accounts receivablecovenants has been retained under POWERGRID II. In addition, the Govemrnnent has formally agreed to take all suchmeasures as may be necessary to allow POWERGRID to maintain its accounts receivable at a level not exceeding twomonths.

POWERGRID has achieved 100 percent realization of its total bills throughout FY97 and FY98, but due to past arrears(outstanding dues), its total accounts receivable remain at a level of about four months of its transmission and other servicerevenues as of March 31, 1998. In the case of POWERGRID, these past arrears were caused by two main problems: (a)long-standing tariff disputes, which took a long time to settle, but were finally resolved in POWERGRID's favor in mid-1996; and (b) extraordinary delays by CEA and MOP in processing and notifying, respectively, tariffs for newPOWERGRID assets and modifications on tariffs on existing assets, mostly but still not fully resolved as of December 1997.The Government of India approved on February 7, 1997, the recovery of outstanding dues of central power sector utilities,including POWERGRID, through central appropriations. The Government modified its original October 1996 decision bylimiting the annual appropriation from any one state to a maximum of 15 percent of that state's Central Plan Assistance.Faster recovery would, in the view of the Government, have placed an unreasonable burden on state government finances.These arrangements have been confirmed by MOF and would be implemented in the coming years by the Government. Ithas been agreed that amounts to be recovered through such central appropriations will be excluded in the review of itscompliance with the accounts receivable covenant, as long as the agreed recovery arrangements continue to be implemented.This reduces POWERGRID's net accounts receivable from about 4 months (Rs. 3,713 million), to about 1.2 months (Rs1,1 15 million) as of March 31, 1998.

Past delays in tariff notifications have adversely affected POWERGRID's bill recovery. It is expected that such delayswould be contained if not entirely eliminated with the expected establishment of the Central Electricity RegulatoryCommission (CERC). Until the CERC is in place, the risk remains and is likely to affect POWERGRID already in thecourse of 1998. The December 1997 tariff notification took a long time to process and is now approved with retroactiveeffect, from April 1, 1997. This gives POWERGRID the right to charge its clients retroactively. While POWERGRID isthus legally entitled to such charges, it is highly unlikely that it would be able to collect fully such retroactive charges.The clients, the SEBs, do not have similar opportunities to retroactively raise their rates, and will find it difficult to pay.The same issue will continue to be faced by POWERGRID in the recovery of foreign exchange variations, until a more


forward-looking mechanism is put in place by the CERC. The Bank has encouraged POWERGRID to considerprospective, not retroactive, application of the new tariff, and has reiterated that POWERGRID's accounts receivablecovenant is to be complied under POWERGRID II and compliance is a precondition to future lending.

3. Technical Assessment:

The project does not pose any particular technical risks, given POWERGRID's demonstrated capabilities in transmissionsystem development and the use of proven technologies and implementation practices. The selection and design ofindividual projects in POWERGRID's investment program follows comprehensive planning and system studies, preparedwith the assistance of leading international consultants. Copies of such planning and system studies are available andwill be placed in the project file. The latest summary of the results was published in August 1997 in POWERGRID'sConceptual Plan for Bulk Power Transmission through 2012. Experience gained from the Northern and Southern regionsystem coordination and control projects, and the continued involvement of the same consultants, put POWERGRID in astrong position to implement similar projects for the Eastern and Western regions under the project. However, theseprojects are technically and organizationally among the most complex and high-tech in power development, and willchallenge both POWERGRID including its consultants and the contractors/suppliers even if prequalified and limited tothe world's leading companies in the field.

4. Institutional Assessment:

a. Executing agencies: POWERGRID would implement the project. Its projects are very similar in nature to thosebeing implemented under the two major ongoing Bank operations. POWERGRID's performance has been generallysatisfactory and the ongoing projects have been rated "Satisfactory" consistently since 1994. In the one technical areawhere POWERGRID does not yet possess extensive experience - modern system coordination and control projects -POWERGRID will continue to use leading international consultants funded under Bank loans. The lessons learnedduring the implementation of the Southern and Northern region systems will directly help POWERGRID and itsconsultants in the implementation of the Eastern and Western region systems. POWERGRID's institutional capabilitiesin environmental and social aspects of its operations are summarized in section 5 below.

b. Project management: POWERGRID would manage the project, with the assistance of consultants for thecoordination and control systems. POWERGRID's performance in managing and implementing transmission projectshas been highly satisfactory. POWERGRID's quality management system for the turnkey execution of transmission andsubstation projects inclusive of design, engineering, procurement, construction, operation and maintenance, has beenassessed by the Electricity Association Quality Assurance Ltd. from London, UK, and "complies with the QualityAssurance Requirements of ISO 9001 : 1994". Problems were experienced earlier in system coordination and controlprojects. They have been resolved, contracts were awarded in December 1997-January 1998, and the implementation ofthe two ongoing Bank-supported projects is now underway.

5. Environmental and SocialAssessment: Environmental Category: [XI A

SECTORAL ASSESSMENT - ENVIRONMENTAL AND SOCIAL POLICY AND PROCEDURES (ESPP)

A sectoral environmental and social assessment has been finalized, following national public consultation. Its finalreport is entitled "POWERGRID's Environmental and Social Policy and Procedures". The ESPP was prepared in closeconsultation with the Bank and several earlier versions were reviewed by the Bank since late 1995. The final draft of theESPP was cleared by the Bank in December 1997, formally approved by POWERGRID's Board of Directors on January20, 1998, and then placed in the Bank's Info Shop/Public Information Center. Its executive summary wassimultaneously submitted to the Bank's Board of Directors (SecM98-55, dated January 29, 1998). Minor furthermodifications were agreed in April and have been incorporated in the final version of the ESPP. The summary isattached as Annex 13. The ESPP provides POWERGRID with a formal corporate policy and framework for theidentification, assessment and management of environmental and social issues at corporate and project levels. It has

Project Appraisal Document Page 24INDIA POWERGRID i1

been agreed that POWERGRID shall provide the Bank an opportunity to exchange views before making any materialamendments to its ESPP.

ORGANIZATIONAL ASPECTS FOR THE IMPLEMENTATION OF THE ESPP

POWERGRID established an Environmental Management Cell during the processing of POWERGRID 1. It wasformally upgraded into a department in 1995 and expanded into an Environmental and Social Management Departmentin 1996. Field units, Environmental and Social Management Cells and Teams, have been established at POWERGRID'sregional and divisional organization levels, respectively. The ESPP includes a staff development plan. POWERGRID'sFY98 and FY99 budgets include the necessary funding provision for staff training and required consultant support. Withthese actions, POWERGRID has the institutional capability to implement its ESPP. POWERGRID has closely followedthe challenges being faced by other energy companies in these areas and has incorporates the lessons into its operationsand practices. POWERGRID's management and concerned staff are convinced of the need for and are fully committed tothe uncompromising implementation of the ESPP.

SOCIAL ASPECTS

Large-scale resettlement is not expected to be required and no major social issues are envisaged in POWERGRID'soperations as per the ESPP. POWERGRID's entitlement framework, confirmed in the ESPP, is uniform, based on India'sdraft National Policy, rather than state-level policies and legislation. The two system coordination and control projectsand the East-North Interconnector 1, the first three projects to be funded under POWERGRID II, do not involveresettlement.

ENVIRONMENTAL ASPECTS

The Bank assigned an "A" rating to the project, reflecting the large size of POWERGRID's investment program and thescale of current and proposed Bank investment in POWERGRID. However, the overall environmental impact ofPOWERGRID's operations is expected to be positive as its focus is to improve the efficiency of power transmission andpower system operations. As per the ESPP, its investments do not have any significant adverse impacts on theenvironment. A Bank-sponsored sector study concluded that PCBs are not an issue in POWERGRID's operations.

Environmental assessment reports on the East-North Interconnector I and the Eastern and Western region coordinationand control systems have been prepared by POWERGRID and these projects have been cleared by the Bank forimplementation. Reports on the East-South Interconnector II, East-North Interconnector II and East-West InterconnectorI are under preparation by POWERGRID.

MONITORING AND CONTINUING SUPPORT

The ESPP was prepared in close cooperation with the Bank in the 1995-97 period. POWERGRID has appreciated theBank's participation and expects continued Bank support in the implementation of the ESPP, in particular in itsapplication to the two largely transmission projects that are being prepared for Bank financing (the East-SouthInterconnector II and the East-North Interconnector II and East-West Interconnector I), but also for more general issuesand problems, as POWERGRID implements its ESPP. The Bank will review POWERGRID's environmental and socialreports for each Bank-financed Investment Project and will monitor POWERGRID's performance in the implementationof such plans and in the overall implementation of ESPP in Bank-financed Investment Projects.

LINKAGE TO POWER STATIONS

As discussed in section C.1, Bank funding for some POWERGRID transmission systems is also dependent on relatedgeneration projects having been prepared in accordance with environmental and, resettlement and rehabilitation standardssatisfactory to the Bank . The application of the Bank's environmental and social standards to the concerned power


stations is necessary in order to help establish that the associated transmission systems are fully justified and theseInvestment Projects can be approved for Bank financing under POWERGRID II. Once the Bank has approved suchInvestment Projects, the Bank will review the implementation of the Investment Projects and will not underPOWERGRID II review the implementation of the concerned generation projects nor would POWERGRID be heldaccountable by the Bank for their implementation - POWERGRID has no control over these or any other generationprojects.

6. Participatory Approach:

POWERGRID's key stakeholder groups are: (i) its clients, the state electricity boards and their state grid companysuccessors such as GRIDCO in Orissa; generating companies such as NTPC; and its regulator (CEA) and owner (theGovernment); (ii) persons potentially affected by its operations; (iii) its staff; and (iv) its financiers.

(a) During the planning stage, POWERGRID's proposed projects are subjected to intensive, and often prolonged,review and discussion among the potential clients. Projects can not move ahead without the support of the clients.Consultation continues at the time of CEA review of projects for techno-economic clearance. During operations, India'sregional electricity boards (REBs), the governing bodies of the regional power pools (see Annex 11 for backgroundinformation and technical discussion), are the venue for well-established and regular review and discussion of all factorof power system operations. POWERGRID's owner, the Government through its various ministries, has ampleopportunities to influence POWERGRID in future direction.

(b) POWERGRID's participatory approach with respect to persons potentially affected, during construction andoperations, is detailed in its Environmental and Social Policy and Procedures (ESPP) - see section 5 above - andsummarized in Annex 13. The ESPP was prepared with the assistance of Development Associates, a well-known NGO-type consultant, and was subjected to national consultation before its finalization. By the very nature of transmissionroute selection, extensive field work is necessary and readily provides for consultation in the field. Line routings andsubstation locations are selected to avoid populated and ecologically sensitive areas;

(c) POWERGRID is a fast-growing utility and provides unique opportunities for career growth in the most complexand high tech area of power development - and experience in POWERGRID will open new opportunities elsewhere. Asdiscussed in Section B.4. 1., operating in a sector where substantial private investment is expected, and in an economywhere growth in industries and telecommunications will offer high caliber employees new opportunities - POWERGRIDis already finding it increasingly difficult to retain well-qualified staff, being constrained by standard public sector termsand conditions until privatization; and

(d) Financiers, including the Bank as POWERGRID's single biggest financier, have a keen interest inPOWERGRID's success, both in terms of their sizable and growing financial commitment and in terms of a reputationrisk. POWERGRID's information and financial management systems provide information to ease the concerns offinanciers. POWERGRID will have to become more outward-looking in the coming years in order to be able to attractthe required high level of commercial financing from sources unfamiliar with POWERGRID, to be able to attract supportand diversify its financing sources as planned.

F: SUSTAINABILITY AND RISKS

1. Sustainability:

POWERGRID has demonstrated its capability to implement and operate major transmission projects. The sustainabilityof POWERGRID, including the facilities to be developed under the proposed project, is threatened primarily by possiblenon-payment of its service charges by the client SEBs (these risks are explained in Section E.2). POWERGRID hassince 1994 applied its new investment and commercial policies and has brought its accounts receivable under control.


Sustained efforts will be required - with continued support by the Government - in bill collection, when necessaryincluding the application of the investment and commercial policies.

The achievement of POWERGRID's corporate mission to improve the efficiency of power system operations will alsorequire structural improvements in bulk power tariffs as agreed under an action plan prepared under Ln. 3577-IN andcurrently under implementation. The implementation of this action plan on bulk power and transmission tariff reformshas been confirmed under POWERGRID II. Annex 11 discusses in detail the challenge POWERGRID - and the otherconstituents in India's regional grids - will face in the implementation of the new availability-based and frequency-linkedthree part tariff and trading system. India is embarking on an evolutionary path towards new approaches in power systemoperations and trading. The responsibility to facilitate that development and transition falls on POWERGRID. Theresponsibility to take advantage of the new opportunities falls on each individual utility and generator.

2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1):

Project Outputs to Development ObjectivesRisk Risk RaigRisk Minimization Measure

Regulatory and Institutional Reform: Medium/ Most critical remaining legal/regulatory item directly affectingLegislation is delayed and/or CERC's Low POWERGRID is the proposed establishment of CERC, as CERC isestablishment and operationalization is slow expected to improve and accelerate the tariff notification process. If

the legal amendment authorizing private transmission is delayedfurther, future transmission projects beyond those in POWERGRID'scurrent investment plan may be adversely affected. The Bank wouldcontinue the dialogue with the Government on various aspects ofcentral regulatory reform, including the development of CERC andCEA, and take progress into account when considering future lendingto POWERGRID.

Tariff Reform: Operationalization of the new High / Bulk power tariff reform is critical for POWERGRID's corporateavailability-based and frequency-linked Medium mission. The notification of such tariffs in the Southern region isinnovative three-part tariff and trading system therefore a condition of loan effectiveness, and across India as a loanin the regions is slow or inadequate covenant. The Bank would continue to work with the Government,

POWERGRID and NTPC on the inevitable implementation difficultiesduring project implementation.

POWERGRID's Institutional development: Medium / The completion of the reconstitution of POWERGRID's Board ofInstitutional performance deteriorates, private Low Directors is a critical corporate-level mitigation action and condition oftransmission ventures do not materialize, negotiations. Bank involvement is expected to facilitateprograms are delayed. POWERGRID's first private transmission ventures.

Financial Performance: Financial Low POWERGRID's past record demonstrates generally satisfactoryperformance deteriorates, commercial funding compliance with financial covenants and achievement of agreeddoes not materialize, disinvestment and/or financial targets. Continued Bank involvement is expected to facilitateequity issue programs are delayed. POWERGRID's entry to commercial debt and equity markets. Success

will be influenced by commercial performance.

Commercial Arrangements 1: Large-scale Medium Although bill collection is currently under control, given the poorbuild-up of new arrears would threaten financial position of some of its clients, it is likely that POWERGRIDfinancial viability, liquidity and will experience occasional problems e.g. at the time of tariffimplementation of investment program, adjustments and with a few individual clients. These problems areultimately jeopardizing achievement of being mitigated with POWERGRID's commercial and investmentPOWERGRID's corporate mission. policies, increasing bill coverage by letters of credits, and monthly

monitoring of POWERGRID's performance, making large-scale build-up of arrears unlikely.


Risk Risk Rating Risk Minimization Measure

Commercial Arrangements 2: Financial High POWERGRID can mitigate against these high risks effectively only bystake in generation projects would undermine limiting its involvement to transmission service. POWERGRID canfinancial position and perception of integrity and is expected to facilitate e.g. private mega power projects andas the coordinator of system operations regional power cooperation in the Indian subcontinent and providing

transmission service, but not buy and sell electricity to its account fromsuch projects and cooperation arrangements

Project components to outputs

System Coordination and Control projects are Medium Implementation support to POWERGRID by leading intemationaldelayed consultants to continue, along with lessons from the ongoing projects

learned and incorporated. Advance procurement actions are beingtaken by POWERGRID to ensure effective loan utilization from thebeginning. These projects are, however, highly complex andchallenging to implement in the state power sector.

Transmission System Development projects Low POWERGRID has demonstrated its capabilities and has secured theare delayed support of financiers. Advance procurement actions are being taken by

POWERGRID to ensure effective loan utilization for Bank-supportedfuture projects. Direct working relationship between the Bank andconcerned generating companies, such as NTPC and CEPA, thedevelopers of the proposed Talcher and Hirma power projects,respectively, is proposed to facilitate the application of the Bank'senvironmental and social standards to the concerned power stationswhere required by the Bank as a condition for supportingPOWERGRID's Investment Projects in transmission.

Implementation of projects by Independent Medium IPTCs would implement transmission projects, involving no unusualPower Transmission Companies (IPTCs) is technical risks. Beyond the approval of private sector investment indelayed transmission (still pending at the Parliament), the main risk is the time

(and resulting possibility of project implementation delay) it wouldtake to conclude the first agreements. POWERGRID 11 providesfinancial, legal and technical services to assist POWERGRID. CloseBank Group involvement is also envisaged, including possible supportfor the IPTCs through guarantees (Bank) and/or investment (IFC).

Overall project risk rating Medium POWERGRID is a competent and well-established grid company andby itself, would qualify for a "Low" overall risk rating. However, thecompany operates in a highly challenging environment, in a sectorfacing fundamental managerial, financial and operational issues. The"Medium" overall risk rating reflects the likelihood of problems anddelays POWERGRID is expected to face in meeting these challenges.

3. Possible Controversial Aspects

* Fundamental controversies in POWERGRID's operations were resolved in the course of processingPOWERGRID I. They focused on the desirable role of POWERGRID and its inevitable impact on agencies thathad to transfer some of their businesses, functions and assets to POWERGRID. The implementation of the bulkpower tariff action plan including its frequency-linked pool rate for unscheduled interchanges will be a majorundertaking and may become controversial and the system may even become unoperational in some regions, e.g.due to conflicts between participants and/or payment defaults on unscheduled interchanges.


+ The Bank is not aware of any major social or environmental issues in POWERGRID's operations. This positiveassessment was validated by the cautiously positive public response in the national consultation onPOWERGRID's proposed ESPP in 1997. However, environmental and social issues may arise in NTPC'sTalcher and/or CEPA's Hirma power generation projects. These impacts could be mitigated if the Bankparticipates in these generation projects.

+ The processing of the private transmission and/or electricity regulatory commissions bills may becomecontroversial, current positive outlook notwithstanding, as was experienced with the original Ordinance forprivate transmission.

+ Any proposal, if one is made in the coming years, even for a modest and gradual disinvestment of theGovernment's shares in POWERGRID, may become controversial, particularly as the Government'sDisinvestment Committee has recommended against immediate disinvestment. However, the Commissionsupports private transmission ventures including joint venture companies.

G: MAIN LOAN CONDITIONS

1. Effectiveness Conditions

Standard Bank legal requirements (guarantee agreement between the Government and POWERGRID in effect, legalopinions on the Government/ POWERGRID and agreements with the Bank).

Satisfactory implementation of the action plan for bulk power tariff reforms - availability-based tariffs are notified for theSouthern region.

Security arrangements satisfactory to the Bank. Some of POWERGRID's transmission assets have liens on them. TheBank therefore also requires liens, which will rank pari passu with other lien holders, in such form as the Bank mayreasonably require. The security arrangement established under POWERGRID I in 1993 may satisfy this requirement, ifit can be extended to POWERGRID II, in a manner satisfactory to the Bank.

2. Other (classified according to covenant types used in the Legal Agreements database.)

Accounts/Audit (covenant type 1):

POWERGRID shall fumish to the Bank, not later than six months after the end of each fiscal year, certified copies of itsaudited financial statements and Special Account Audit, and its auditors' reports of such scope and in such detail as theBank may reasonably request.

Financial Performance (covenant type 2):

POWERGRID shall take all necessary measures to produce, each year, funds from internal cash generation equivalent tonot less than 20 percent of its capital expenditures (three-year moving average).

Except as the Bank shall otherwise agree, POWERGRID shall not incur any debt, if after the incurrence of such debt, theratio of debt to equity shall be greater than 4 to 1.

POWERGRID shall take all necessary steps to maintain its accounts receivable at a level not exceeding an amountequivalent to the proceeds of its transmission and other services for the preceding two months.


The Government of India shall take all necessary steps to allow POWERGRID to maintain its accounts receivable at alevel not exceeding an amount equivalent to the proceeds of its transmission and other services for the preceding twomonths.

Management Aspects (covenant type 5):

POWERGRID shall furnish, not later than December 31 of each year, its 10-year financial projections, including itsinvestment program and financing plan, for Bank review and comments.

The Government of India shall maintain POWERGRID's Board of Directors with at least one-third non-governmentmembers.

Environmental, Involuntary Resettlement, Indigenous People (types 6-8):

POWERGRID shall maintain an appropriate organization structure for implementing, and unless the Bank otherwiseagrees, shall not waive, amend, modify, abrogate or repeal, its Environmental and Social Policy and Procedures.

Monitoring, Review and Reporting (covenant type 9):

POWERGRID, in consultation with the Government and the Bank, shall carry out a mid-term review of the project,including an assessment of POWERGRID's overall performance, not later than June 30, 2000.

Implementation (covenant type 10).

POWERGRID shall furnish Investment Project proposals, in accordance with agreed eligibility criteria, for fundingunder the Bank loan - applicable to projects not already appraised by the time of loan approval. The appraisal ofInvestment Projects for transmission for power imports/exchanges and telecommunications, if any, will have to coveradditional features and safeguards, as the Bank may specify, beyond the standard criteria in Annex 12.

POWERGRID shall complete Investment Projects approved for Bank financing and the Government of India shall makearrangements, satisfactory to the Bank, to provide POWERGRID or cause POWERGRID to be provided with necessaryfunds.

Sectoral regulatory/institutional actions (covenant type 12).

Unless the Bank may otherwise agree, POWERGRID shall continue to function as a grid operator, provider oftransmission service, and facilitator of private power generation, and shall not enter into power trading to its ownaccount.

The Government of India shall implement bulk power tariff and trading reforms in accordance with a time schedulesatisfactory to the Bank.


H. READINESS FOR IMPLEMENTATION

[X] The engineering design documents for the first year's activities are complete and ready for the start of projectimplementation.

[X] The procurement documents for the first year's activities are complete and ready for the start of projectimplementation. The East-North Interconnector I is already under bidding, bid documents for the Eastern regioncoordination and control system have been issued, bid documents for Talcher have been cleared by the Bank, and the biddocuments for the Westem region system, directly adopted from those approved for East, will be issued by mid- 1998.

[X] The Project Implementation Plans (PIPs) have been appraised and found to be realistic and of satisfactory quality.PIPs for the Eastern and Western region control systems and the East-North Interconnector I and the East-SouthInterconnector II have been approved. Draft PIP for the East-North Interconnector II and East-West Interconnector I isavailable.

[X] The following items are lacking: Environmental and Social Reports on the East-South Interconnector II and East-North Interconnector II and East-West Interconnector Is (not required by the approval of POWERGRID II, but by theapproval of these projects for Bank financing - see also related eligibility criteria on the environmental and social aspectsof the proposed Talcher and Hirma power generation projects).

I. COMPLIANCE WITH BANK POLICIES

X This project complies with all applicable Bank policies.

Task Leader: ____

Kari J. Nyman

Sector Manager:Alastair J. McKechnie

Country Director:EWYin R. Lifn

ANNEX IPage I of 5

ANNEX I


PROJECT DESIGN SUMMARY

Narrative Summaiy Key Perfoinmance Indiators' Monitoring and Supervision CriticatAssumnptions and:_____.____._____.___ R isks

CAS Objectives (CAS Objective to BankMission)

(a) promote private sector 1. Progress of India's state 1. (a) processing and Assumption: adequatedevelopment; and (b) reduce power sector reform program, implementation supervision of infrastructure, including ainfrastructure bottlenecks, for POWERGRID's performance operations supporting state functioning power systemsustained rapid economic as the Central Government's power reforms, NTPC and capable of meeting the demandgrowth. The project is agent of reform, regulatory POWERGRID; (b) progress for electricity, is a prerequisitedesigned to: (a) strengthen reform at the center (Central reports of beneficiary utilities; to sustaining India's economicPOWERGRID to enable it to Electricity Regulatory (c) legislative and other actions developmentpromote and leverage greater Commission), and Indian and of central and state Risk: the required reforms atinvestment; and (b) improve foreign investment in the governments; and (d) reports the central and state levels dothe regulatory, tariff and power sector. and contacts with financiers not materialize, due to lack ofinstitutional environment, for and developers, political commitment and/orprivate investment in other issues.generation and transmissionand promotion of state powersector reform.

Project Development (Development Objectives toObjectives CAS Objective)

(a) assist the Government of 1. Regulatory Reforms 1. (a) Legislation processed; Assumption: privateIndia in restructuring the baseline: CEA processes tariff (b) CERC established and has investment needed inpower transmission sub-sector, applications, MOP notifies become operational; (c) transmission, independentimprove coordination in power tariffs inter alia for POWERGRID's quarterly regulation by CERC or itssystem operations and promote POWERGRID. progress reports; (d) equivalent will facilitate theinter-regional and interstate mid-term - June-2000. The supervision mission field visits; development of India's powerpower trading through government has established an (e) processing of sector in general and is in theregulatory, tariff and enabling legal framework and POWERGRID III by mid-term interest of POWERGRID.institutional reforms. has established CERC inter alia of POWERGRID II, Risk: Legislation is delayed

to take over tariff functions of addressing issues in regulation. and/or CERC establishmentCEA and MOP and operationalization is slow.end-of-project: same as mid-termfull impact - end-2004: same asmid-term

2. Tariff Reforms 2. (a) tariff notifications Assumption: availability-basedbaseline: IPP tariffs based on submitted; (b) quarterly reports two-part tariffs are crucial forPLF; new transmission tariffs from POWERGRID and POWERGRID's corporatenotified for POWERGRID. NTPC; (c) supervision mission mission - and are in the interestmid-term - June-2000: field visits; (d) processing of of NTPC.

_ availability tariffs have been POWERGRID III by mid-term Risk: Operationalization of the

Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of project and full impact.

ANNEX IPage 2 of 5

notified for central thermal of POWERGRID II, new tariff system in the regionsstations and new IPPs addressing issues in tariffs. is slow or inadequate.end-of-project: the new tariffsystem is fully operational, alltransitional issues have beenaddressedfull impact - end-2004: same asmid-term

3. Institutional Reforms 3. (a) Legislation processed; Assumption: independentbaseline: private investment (b) CERC established and has regulation will facilitate theexclusively in transmission is become operational; (c) development of India's powernot allowed. POWERGRID's quarterly sector in general and is in themid-term - June-2000: CERC is progress reports; (d) interest of POWERGRID.operational. supervision mission field visits; Risk: Legislation is delayedThe Government has (e) processing of and/or CERC establishmentestablished an enabling legal POWERGRID III by mid-term and operationalization is slow.framework for private of POWERGRID 11,investment in transmission. addressing issues in regulation.End-of-project: same as mid-term full impactend-2004: same as mid-term

(b) support POWERGRID's 1. Institutional Growth and 1. (a) Legislation for private Assumption: These actions areinstitutional development and Development transmission processed; (b) critical for POWERGRID'spromote satisfactory financial baseline: a regular CMD is in advisers engaged; (c) corporate mission.and commercial performance place, Board of Directors has POWERGRID's quarterly Risk: Institutionaland the implementation of been reconstituted, and the progress reports; (d) performance deteriorates, jointPOWERGRID's investment action plan for further supervision mission field visits; venture legislation and/orand commercial policy. institutional development is in (e) processing of commercial funding does not

active implementation POWERGRID III by mid-term materialize, programs aremid-term - June-2000: action of POWERGRID II, delayed.plan completed, addressing issues inend-of-project - end-2002: first POWERGRID's institutionalindependent power transmission development.company (IPTC) has beenestablished and is operational(implementing its project)full impact - end-2004: IPTC'sproject is commissioned.

2. Financial Performance and 2. (a) POWERGRID's Assumption: These actions areNew Financing Arrangements quarterly progress reports; (b) critical for POWERGRID'sbaseline: financial covenants in supervision mission field visits; corporate mission.compliance (c) processing of Risk: Financial performancemid-term - June 2000: same as POWERGRID III by mid-term deteriorates, commercialbase-line, plus commercial of POWERGRID II, and funding does not materialize,borrowings as required POWERGRID II by end-of- disinvestment and/or equityend-of-project: same as mid- POWERGRID 11, addressing issue programs are delayed.term issues in financial performancefull impact - end-2004: same as and related arrangements.end-of-project.

3. Commercial Arrangements 3. (a) POWERGRID's Assumption: Bill collection isbaseline: POWERGRID has monthly collection reports; (b) POWERGRID's single biggesttransmission service contracts supervision mission field visits; challenge to financial viability.

ANNEX IPage 3 of 5

with all clients. Full realization (c) processing ofof current bills, 60% coverage POWERGRID III by mid-termby letters of credits (L/Cs). of POWERGRID II,Arrangements for the recovery addressing issues inof past arrears finalized. commercial arrangements.mid-term -June 2000: CERCprocessing new tariffapplications, bill collectionunder control, 100% L/Ccoverage, central appropriationspaid as per scheduleend-of-project: same as mid-termfull impact - end-2004: same asend of project

Project Outputs

(a) the development of 1. Modern System 1. (a) POWERGRID's (Outputs to DevelopmentPOWERGRID's system Coordination and Control quarterly progress reports; Objectives)coordination and control Facilitiesfacilities. baseline: none exist (b) supervision mission field Assumption: These facilities

mid-term - June 2000: all five visits; (c) processing of are critical for POWERGRID'sprojects under construction POWERGRID III by mid-term corporate mission.end-of-project: North and of POWERGRID II; (d) Risk: System CoordinationSouth in full-scale operation, processing of POWERGRID and Control projects areother three systems being IV by end of POWERGRID II. delayed, due to lack of fundingcommissioned and/or slow implementationfull impact - end-2004: all fivesystems are in full-scaleoperation

(b) the reinforcement of 2. Reinforcement of Regional 2. (a) POWERGRID's Assumption: These facilitiesPOWERGRID's transmission Transmission Systems quarterly progress reports; (b) need reinforcement in line withsystem towards a national grid. baseline: current system, major supervision mission field visits; the growth of the power

programs underway in North, (c) processing of system.South and West under Loan POWERGRID III by mid-term Risk: POWERGRID's own3237 and 3577-IN of POWERGRID II; (d) projects and/or its Jointmid-term - June 2000: North, processing of POWERGRID Venture projects (if any) areSouth and West all IV by end of POWERGRID II. delayed, due to lack of fundingin operation, and/or regulatory issues and/orend-of-project: project facilities slow implementationall in operationfull impact - end-2004: same asend-of-project

3. Development of a National 3. (a) POWERGRID's Assumption: TheseGrid quarterly progress reports; (b) interconnection facilities arebaseline: current system (North- supervision mission field visits; critical for POWERGRID'sWest connected), South-West & (c) processing of corporate missionEast-South I projects underway POWERGRID III by mid-term Risk: POWERGRID's ownmid-term - June 2000: South- of POWERGRID II; (d) projects and/or its proposedWest & East-South I projects in processing of POWERGRID IPTC projects are delayed, dueoperation, East-North I, East- IV by end of POWERGRID II. to lack of funding and/or tariffSouth II under construction and/or regulatory issues and/or

_ end-of-project: East-North I & slow implementation.

ANNEX IPage 4 of 5

II, East-South II, East-West in POWERGRID also needs tooperation ensure that its role in thesefull impact - end-2004: 800kV projects, if linked to privatepower highway or Northeast to mega projects, is limited toIndia through East giga link transmission service and thatunder construction its transmission project

implementation does notbecome a constraint orbottleneck.

4. Regional Power 4. (a) actions of central and Assumption: Power exchangesCooperation in the Indian state governments and with neighboring countries,Subcontinent neighboring countries; (b) mostly imports from Bhutan,baseline: power imports from reports and contacts with Nepal and possibly also short-Bhutan, modest exchanges with donors, and private financiers term from Pakistan, couldNepal mid-term - June 2000: and developers; (c) Bank promote power developmentend-of-project: mission field visits in various and regional economicfull impact - end-2004: no firm countries; (d) processing of cooperation. India's owntargets proposed to be set under POWERGRID III. hydro and coal options maythis operation in view of offer lower-cost opportunities.political uncertainties. Risk: Political considerations

and lack of creditworthiness ofIndian clients (powerimporters) may prevent therealization of potential regionaleconomic benefits.POWERGRID needs to ensurethat its role in these projects issimilar to its involvement inprivate mega projects locatedin India (see 3. above).

Project Components (Components to Outputs)[See Annex 2 for a detaileddescription.]

1. Eastern Region System 1. baseline: project designed, 1. (a) POWERGRID's Assumption: This project isCoordination and Control approved by clients quarterly progress reports; and critical for POWERGRID'sProject mid-term - June 2000: project (b) supervision mission field corporate mission.

under construction visits. Risk: The project is delayed,end-of-project: project due to lack of funding and/orcommissioned slow implementationfull impact - end-2004: projectin full-scale operation

2. Western Region System 2. same as 1. above 2. (a) POWERGRID's Assumption: This project isCoordination and Control quarterly progress reports; and critical for POWERGRID'sProject (b) supervision mission field corporate mission.

visits. Risk: The project is delayed,due to lack of client agreementand/or funding and/or slowimplementation

3. East-North Interconnector 1 3. baseline: project designed, 3. (a) POWERGRID's Assumption: This project isapproved by clients quarterly progress reports; and needed to initiate powermid-term - June 2000: project (b) supervision mission field trading between the Eastern

ANNEX IPage 5 of 5

under construction visits; (c) cofinancier reports. and Northern regions.end-of-project: project Risk: The project is delayed,commissioned due to lack of funding and/orfull impact - end-2004: project tariff issues and/or slowin full-scale operation implementation

4. East-South Interconnector 11 .4. baseline: project designed, 4. (a) POWERGRID's Assumption: Such majorapproved by clients quarterly progress reports; and interconnection facilities aremid-term - June-2000: project (b) supervision mission field critical for POWERGRID'sunder construction visits; (c) developer & corporate missionend-of-project: project cofinancier reports. Risk: The project is delayed,completed due to lack of funding and/orfull impact - end-2004: project tariff and/or regulatory issuesin full-scale operation and/or slow implementation

5. East-North Interconnector II 5. baseline: project designed, 5. (a) POWERGRID's Assumption: Such a majorand East-West Interconnector I not yet approved by clients quarterly progress reports; and interconnection facility is

mid-term - June 2000: project (b) supervision mission field critical for POWERGRID'sreached financial close visits; (c) cofinancier reports. corporate missionend-of-project: project under Risk: The project is delayed,construction due to lack of funding and/orfull impact - end-2004: project tariff issues and/or slowcompleted implementation

6. Other POWERGRID 6. baseline: project not yet 6. (a) POWERGRID submits Assumption: POWERGRIDProjects - time-slice lending proposed for Bank support project reports (PIP and has a large and expandingapproach provides mid-term - June 2000: if project environmental assessment); (b) program of priorityPOWERGRID the flexibility to required, project designed, POWERGRID's quarterly investmentssubmit additional projects or approved by clients and for progress reports; then (c) Risk: The program is delayed,replace some of the projects 1- Bank support supervision mission field visits. due to lack of funding and/or5 listed above, for Bank end-of-project: and (d) processing of tariff and/or regulatory issuesfinancing under POWERGRID full impact - end-2004: project POWERGRID 111. and/or slow implementation11, III and/or IV - if required. under construction (if project

required).

ANNEX 2Page I of 2

ANNEX 2


DETAILED PROJECT DESCRIPTION

I. POWERGRID II has been processed as a time-slice operation, to support Investment Projects from within eligiblecomponents of POWERGRID's entire investment program. That program is described below. Individual Investment Projects fromproject components 1-2 and the Institutional Development and Training component 5 are in principle eligible for POWERGRID II,projects from investment project components 3-4 are not eligible for Bank financing.

Project Component 1 - US$383 million (base cost of component)

System Coordination and Control

2. POWERGRID's investment program includes five regional system coordination and control projects. These arePOWERGRID's highest priority projects for achieving its corporate mission of improving the coordination and efficiency of powersystem operations. Three of the five projects are currently under implementation: (a) the Northern region project under Ln. 3237-IN;(b) the Southern region project under Ln. 3577-IN; and (c) the North-Eastern region project under ADB's ongoing POWERGRIDproject. The Eastern and Western region projects are proposed to be implemented under POWERGRID II. Details of these twoprojects are given in the respective Project Implementation Plans (PIPs). Summary descriptions are available at Annex 2A and Annex2B, respectively.

3. These projects are technically and organizationally among the most complex and high-tech in power development. Anoteworthy feature of these projects is the involvement of the SEBs. Under a unified and coordinated approach, POWERGRID helpsSEBs upgrade their state load dispatch centers (SLDCs) and related facilities so that they can improve the operations of state systemsand more effectively participate in the operation of the regional grids. These regional projects therefore provide the required facilitiesfor both POWERGRID and the state utilities, and therefore provide for a three-tier coordination and control facility: SCADA at thefield level and EMS at the state (dispatch) and regional (coordination) levels, and the required telecommunication facilitiess.

4. POWERGRID may diversify into telecommunications, depending on the findings and conclusions of an assessment to becarried our under POWERGRID II. If justified on the basis of such an assessment, investment projects would then be prepared andincluded in POWERGRID's investment program.

Project Component 2 - US$3,775 million (base cost of component)

Transmission System Development

5. The major part of POWERGRID's investments are focused on transmission system development. This major componentcovers: (a) inter-regional transmission links, to interconnect India's power regions towards building a functional national grid; (b)other transmission projects, to connect new power stations to the grid and/or to reinforce regional grids; and (c) various power systemimprovement programs.

6. A 500 MW capacity interconnection between North and West is in operation. Interconnections between South and West at1,000 MW capacity is being commissioned and East and South at 500 MW capacity is under construction. The next projects areinter-regional links from the Eastern region to the Northern region, of which (1) the first is a 500 MW HVDC back-to-back with ACtransmission (the East-North Interconnector I), see Annex 2C for a description; (2) the second is a 2,000 MW HVDC system (theEast-South Interconnector II) from the Eastern region to the South, see Annex 2D for a description, and (3) the third a 3,000 MWHVDC system from the Eastern region to the Northern region (the East-North Interconnector II) and a 1,500 MW connection from theEastern region to the Western region (the East-West Interconnector I), see Annex 2E for a description..

7. A number of other transmission projects, to connect new power stations to the grid and/or to reinforce regional grids, andvarious power system improvement programs, are under implementation, several with Bank financing in the Northern region underLn. 3237-IN and in the Southern and Western regions under Ln. 3577-IN. Additional projects and programs are being prepared.

8. POWERGRID is also involved in regional cooperation activities in the power sector in the Indian subcontinent, coveringongoing power imports from Bhutan and power exchanges with Nepal, and proposed power exchanges with Bangladesh and possible

ANNEX 2Page 2 of 2

power imports from Pakistan. Subject to progress in ongoing preparatory activities and conclusion of agreements, transmissionprojects relating to the expansion of current ongoing activities with Bhutan and/or Nepal, and new activities with Bangladesh and/orPakistan, may be added to POWERGRID's current investment program.


Joint Ventures

9. POWERGRID's investment program includes a highly tentative provision for equity investment in private sectortransmission joint ventures. A few large transmission projects are envisioned to be implemented, instead of POWERGRID directly,by independent private transmission companies, which could involve POWERGRID as a minority shareholder. POWERGRID doesnot intend to take any equity positions, preferring 100% private ownership of such transmission companies, with sponsors selectedthrough competitive bidding. (Bank financial support through POWERGRID is not required for these investments.)


Other POWERGRID Investments

10. POWERGRID's investment program includes a provision for POWERGRID's new headquarters building (underconstruction) and various miscellaneous investment items. (Bank support is not required for these investments.)


Institutional Development, Technical Assistance and Training

11. POWERGRID's investment program includes a provision for consulting services for: (a) various institutional developmentand technical assistance activities. They include services for POWERGRID's role as a facilitator of mega power projects and its owntransmission service arrangements, including private sector transmission joint ventures; and (b) training of POWERGRID staff inthese areas. Training in the operation and maintenance of system coordination and control facilities will also be provided. Technicalassistance will also be provided to assess POWERGRID's proposed diversification into telecommunications and prepare a businessplan and investment projects for inclusion in POWERGRID's investment program

Project Component 6 - US$40-110 million in Bank financing under POWERGRID 11

Completion of ongoing Bank-financed Projects

12. POWERGRID 11 also provides for the completion of: (a) regional power system coordination and control facilities in theNorthem and Southern regions; (b) transmission lines and sub-stations; and (c) institutional development activities, financed by theBank under Loan 3237-IN for the Northem Region Transmission Project and Loan 3577-IN for the POWERGRID SystemDevelopment Project.

ANNEX 2APage I of 2

ANNEX 2A



EASTERN REGION SYSTEM COORDINATION AND CONTROL PROJECT

Background

I. This project is part of POWERGRID's system coordination and control program which will establish computer-based controland communication systems for each region. The program will bring about more effective monitoring and control of the powersystem network at the national, regional and state levels.

2. The Eastern region covers the states of Bihar, Orissa, Sikkim, and West Bengal. It is the fourth largest of India's fiveregional power systems, and it is interconnected to the North Eastern region. The Eastern region comprises the electric power systemsof twelve utilities including POWERGRID, NTPC, State Electricity Boards, and other agencies. The operations are coordinated bythe Eastern Regional Electricity Board (REB) (policy level) and the Regional Load Dispatch Center (RLDC) (operational level).

3. The regional installed generating capacity is about 14,000 MW which represents 16% of the capacity of India in 1997.About 87% of the regional capacity is in coal-fired power plants and the balance 13% in hydro installations. The capacity of theregion is forecast to increase to about 25.5 MW by 2002. The growth of the number of substations is forecast to increase about 50%,and of power flow buses and transmission lines to augment about 70% by the year 2002. The existing load dispatch systems are overten years old.

Scope of the Project

4. The project includes the planning, design, engineering, procurement and implementation of: (a) Regional SystemsCoordination Centers (RSCCs); (b) Central Project Control Centers (CPCCs); (c) State Load Dispatch Centers (SLDCs); (d) Sub-LoadDispatch Centers (Sub-LDCs); (d) Remote Control Units (RTUs); Communication Systems; and (e) Support Facilities. It will replace,upgrade, or augment existing control and communication facilities. The dispatchers at the RSCCs and at all the constituent SLDCswill be provided with modern load dispatch systems to improve power systems operations. The new computer systems, RTUs andcommunication systems will collectively provide capabilities to monitor and improve the interchange between the states through thecoordination activities of the RSCC, reduce the impact of generation and load imbalance, and improve the quality of power.

5. The RSCC will be located in Calcutta while the SLDCs will be: in Patna, Bihar; Bhubaneswar, Orissa; Maithon hydro powerplant of the Damodar Valley Corporation in Bihar; Howrah, West Bangal; and Gangtok, Sikkim. There will be twelve Sub-LDCs andabout 160 RTUs.

6. The project includes a communication system, Energy Management System (EMS) and a supervisory control and dataacquisition (SCADA) with adequate capacity to meet the expanding electric power system requirements. Subsequent requirementsbeyond the design capacity at control centers will be facilitated by the adoption of an open system and distributed architecture of thisproposed scheme. The systems will be sized to accommodate expansion.

7. Real-time data from all major generating stations and substations of the various utilities would be gathered and transmitted tothe state dispatch centers and to the RSCC to provide real-time indication of system conditions and equipment status for systemmonitoring and control. Further data will be transmitted from state load dispatch centers to RSCC using computer to computer links.

8. The project broadly comprises the following:

(a) Adaptation work in power plants and substations(b) Remote terminal units (RTUs)(c) Private automatic branch exchange (PABX) and telecommunication system(d) Computer system of the control centers (hardware and software)(e) Auxiliary power supply system(f) Infrastructure

ANNEX 2APage 2 of 2

Adaptation of Work in Power Plants and Substations

9. It includes all supply and installation of equipment and works to interface the existing installations of the RTU, in particulartransducers, relays, interface cubicles, and wires and cables to connect all these new equipment.

Remote Terminal Units

10. In addition to having normal SCADA capability, they will have:

(a) multiple communication ports with capability to communicate with multiple masters(b) sequence of events (SOE) capability with high resolution time stamping(c) capability to receive time synchronizing signals from the master stations(d) capability to support the International Electrotechnical Commission 870-5 protocol

PABX and Telecommunication System

11. A telecommunication network capable of handling both voice and data to support power system operations will link the loaddispatch centers in the region. An integrated communication network comprising digital microwave radio and optic fiber on wideband will be used with power line carrier usage limited from RTU up to Sub-LDC. The communication system adopted to supportspeech and data transmission will be based on power line carrier (PLC) supported by a backbone network comprising a combinationof wide band microwave and optical fiber systems. The scheme will provide the utilities the tools that will enable them to enhancesystem security, optimize system operation, and improve the overall reliability of the system in coordination with the RSCC.

Computer System of Control Centers

12. This system is required to implement the control system hierarchy of three levels. The hardware elements include processorsand processor terminal; workstations with video monitors, keyboards, and cursor positioning devices; auxiliary memories, andarchival storage devices; local area networks; printers and video copiers; dynamic mapboards; video projecting systems; time andfrequency facilities; digital indicators; interfaces; communication monitoring equipment; and remote terminal units.

13. The software components include supervisory control and data acquisition, information storage and retrieval, real-timedispatching, operations scheduling, power system analysis and dispatcher training simulator.

14. The computer system will include necessary operating system, utilities, compilers, communication, and user interfacesoftware. The latter will support full-graphics technology. In addition, it will include all displays, databases, and reports as well asassociated generation, maintenance and management software.

Auxiliary Power Supply

15. Uninterruptible power supply equipment will be installed in the RSCC, SLDCs and Sub-LDCs. A diesel generator will beinstalled as stand-by-power-supply in each center to ensure and secure supply to essential services which can support a power failurefrom the electric grid only for a short period of time.

Infrastructure

16. The installation of equipment, air conditioning, fire fighting, internal communication, and others will be in existing buildingto be renovated in the case of the RSCC, and in buildings to be provided by the utilities in the case of the SLDCs and Sub-LDCs.

Time for Completion

17. The period of completion is four years from the date of contract agreement.

ANNEX 2BPage I of 2

ANNEX 2B



WESTERN REGION SYSTEM COORDINATION AND CONTROL PROJECT

Background

1. This project is part of POWERGRIDS's national system coordination and control program which will establish computer-based control and communication systems including one for each region. The program will bring about more effective monitoringand control of the power system network at the national, regional and state levels.

2. The Western region covers the states of Goa, Gujarat, Maharashtra and Madhya Pradesh. It is the largest of India's fiveregional power systems, and it is interconnected to the Eastern, Northern and Southern regions. The Western region comprises theelectric power systems of POWERGRID, NTPC, State Electricity Boards, Tata Electric and other agencies. The operations arecoordinated by the Western Regional Electricity Board (REB) (policy level) and the Regional Load Dispatch Center (RLDC)(operational level).

3. The regional installed generating capacity is about 24,300 MW which represents 29% of the capacity of India in 1997.About 84% of the regional capacity is in coal-fired power plants and the balance 13% and 3% in hydroelectric and nuclearinstallations, respectively. The capacity of the region is forecast to increase to about 29,000 MW by 2002. The growth of the numberof substations and power flow buses is forecast to increase about 50%, and of transmission lines to augment about 25% by the year2002. The existing load dispatch systems is several years old.

Scope of the Project

4. The project includes the planning, design, engineering, procurement and implementation of: (a) Regional SystemsCoordination Centers (RSCCs); (b) Central Project Control Centers (CPCCs); (c) State Load Dispatch Centers (SLDCs); (d) Sub-LoadDispatch Centers (Sub-LDCs); (d) Remote Control Units (RTUs); Communication Systems; and (e) Support Facilities. It will replace,upgrade, or augment existing control and communication facilities. The dispatchers at the RSCCs and all the constituent SLDCs willbe provided with modern load dispatch systems which will improve power systems operations. The new computer systems, RTUsand communication systems will collectively provide capabilities to monitor and improve the interchange between the states throughthe coordination activities of the RSCC, reduce the impact of generation and load imbalance, and improve the quality of power.

5. The RSCC will be located in Mumbai; the SLDCs will be: in Kaiwa, Maharashtra; Jambua, Gujarat; Ponda, Goa; andJabalpur, Madhya Pradesh; and one CPCC in Mumbai and another in Jabalpur. There will be seven Sub-LDCs and about 200 RTUs.

6. The project includes a communication system, EMS and a supervisory control and data acquisition (SCADA) with adequatecapacity to meet the expanding electric power system requirements. Subsequent requirements beyond the design capacity at controlcenters will be facilitated by the adoption of an open system and distributed architecture of this proposed scheme. The systems willbe sized to accommodate expansion.

7. Real-time data from all major generating stations and substations of the various utilities would be gathered and transmitted tothe state dispatch centers and to the RSCC to provide real-time indication of system conditions and equipment status for systemmonitoring and control. Further data will be transmitted from state load dispatch centers to RSCC using computer to computer links.

8. The project broadly comprises the following:

(a) Adaptation work in power plants and substations(b) Remote terminal units (RTUs)(c) Private automatic branch exchange (PABX) and telecommunication system(d) Computer system of the control centers (hardware and software)(e) Auxiliary power supply system(f) Infrastructure

ANNEX 2BPage 2 of 2

Adaptation of Work in Power Plants and Substations

9. It includes all supply and installation of equipment and works to interface the existing installations of to the RTU, inparticular transducers, decoupling relays, interface cubicles, and wires and cables to connect all these new equipment.

Remote Terminal Units

10. In addition to having normal SCADA capability, they will have:

(a) multiple communication ports with capability to communicate with multiple masters(b) sequence of events (SOE) capability with high resolution time stamping(c) capability to receive time synchronizing signals from the master stations(d) capability to support the International Electrotechnical Commission 870-5 protocol

PA BX and Telecommunication System

11. A telecommunication networks capable of handling both voice and data to support power system operations will link theload dispatch centers in the region. An integrated communication network comprising digital microwave radio and optic fiber on wideband will be used with power line carrier usage limited from RTU up to Sub-LDC. The communication system adopted to supportspeech and data transmission will be based on power line carrier (PLC) supported by a backbone network comprising a combinationof wide band microwave and optical fiber systems. The scheme will provide the utilities the tools that will enable them to enhancesystem security, optimize system operation, and improve the overall reliability of the system in coordination with the RSCC.

Computer System of Control Centers

12. This system is required to implement the control system hierarchy of three levels. The hardware elements include processorsand processor terminal; workstations with video monitors, keyboards, and cursor positioning devices; auxiliary memories, andarchival storage devices; local area networks; printers and video copiers; dynamic mapboards; video projecting systems; time andfrequency facilities; digital indicators; interfaces; communication monitoring equipment; and remote terminal units.

13. The software components include supervisory control and data acquisition, information storage and retrieval, real-timedispatching, operations scheduling, power system analysis and dispatcher training simulator.

14. The computer system will include necessary operating system, utilities, compilers, communication, and user interfacesoftware. The latter will support full-graphics technology. In addition, it will include all displays, databases, and reports as well asassociated generation, maintenance and management software.

Auxiliary Power Supply

15. Uninterruptible power supply equipment will be installed in the RSCC, SLDCs and Sub-LDCs. A diesel generator will beinstalled as stand-by-power-supply in each center to ensure and secure supply to essential services which can support a power failurefrom the electric grid only for a short period of time.

Infrastructure

16 The installation of equipment, air conditioning, fire fighting, internal communication, and others will be in existing buildingto be renovated in the case of the RSCC, and in buildings to be provided by the utilities in the case of the SLDCs and Sub-LDCs.

Time for Completion

17. The period of completion is four years from the date of contract agreement.

ANNEX 2CPage I of I

ANNEX 2C



THE EAST-NORTH INTERCONNECTOR I PROJECT

The project includes one 500 MW high voltage direct current (HVDC) back-to-back station at Sasaram in the state of Bihar.This HVDC station will be connected to the existing 400 kV/220 kV substation at Biharshariff, Bihar, Eastern region, through a 400kV double circuit line, and to the existing Rihand switchyard of NTPC, Uttar Pradesh, Northern region, through a 400 kV DIC line.

The works included are the following:

Transmission Lines

(a) New one 500 MW HVDC back-to-back station at Sasaram.

(b) Biharshariff-Sasaram 400 kV D/C; 192 km

(c) Sasaram-Rihand 400 kV D/C; 197 km

Substations

(a)i New substation at Sasaram: Two sets of 400 kV busbars. One for the line to Biharshariff (Eastern) and the other for the lineto Rihand (Northern)

(b) Extension of Biharshariff substation: two line bays of 400 kV

(c) Extension of Rihand substation: one line bay of 400 kV

ANNEX 2DPage I of 2

ANNEX 2D



THE EAST-SOUTH INTERCONNECTOR 11 PROJECT

This project is associated with the Talcher II power plant under preparation by NTPC, but once established, will provide ahigh-capacity transmission interconnection between the Eastern and Southern regions. The transmission works include the following:

Transmission Lines

(a) Talcher switchyard - Kolar ± 500 kV 2000 MW high voltage direct current (HVDC); 1363 km long withone electrode line 30 km at Talcher II switchyard end and another 30 kmelectrode line at Kolar substation end, near Bangalore.

(b) Kolar - Hoody 400 kV double circuit (D/C) with quad conductor; 51 km

(c) Kolar -Madras 400 kV single circuit (S/C); 206 km

(d) Kolar - Hosur 400 kV S/C; 130 km

(e) Hosur - Salem 400 kV S/C; 84 km

(f) Salem - Udumalpet 400 kV S/C; 136 km

(g) LILO of Cuddapah - Somanhalli 400 kV S/C; 15 km

Substations

(a) Talcher II converter station Two line bays for 400 kV D/C to Meramundali 400 kV existing substation ofGRIDCO, Orissa

(b) Kolar converter station (Bangalore) New converter substation to be owned and constructed by POWERGRID whichwill have following works:

400 kV bays

(i) Two line bays for 400 kV D/C to Hoody 400 kV existing substation of Kamnataka Electricity Board.

(ii) One line bay to 400 kV S/C Sriperumbudur substation (Madras)

(iii) One line bay to 400 kV S/C to Hosur, new substation of POWERGRID

(iv) Two line bays for LILO of Cuddapah - Somanhalli 400 kV S/C line

(v) 4 x 167 MVA single phase 400 kV/220 kV autotransformer

220 kV bays

(i) 4 x 167 MVA single phase 400 kV/220 kV autotransformer

(ii) Two 220 kV bays

(iii) Two bays for bus transfer and bus decoupler

ANNEX 2DPage 2 of 2

(c) Hoody 400 kV/220 kV substation

Existing substation owned by Kamataka Electricity Board and will be extended to accommodate following bays:

(i) Two line bays for 400 kV/220 kV D/C to Kolar

(ii) Two line bays for LILO of existing Cuddapah - Somanhalli 400 kV S/C line of POWERGRID

(d) Hosur 400 kV/220 kV substation

New substation to be constructed and owned by POWERGRID

400 kV bays

(i) One line bay for 400 kV S/C to Kolar

(ii) One line bay for 400 kV S/C to Salem (existing substation owned by POWERGRID)

(iii) Two transformer bays for 2 x 315 MVA 400 kV/220 kV autotransformers

220 kV bays

(i) Two transformer bays for 2 x 315 MVA 400 kV/220 kV autotransformers

(ii) Four 220 kV bays

(iii) Two 220 kV bays for bus transfer and bus decoupler

(e) Salem 400 kV/220 kV substation

Existing substation owned by POWERGRID, and it will be expanded

(i) Two line bays for 400 kV S/C each to Kolar and to Udumalpet

(f) Udumalpet 400 kV/220 kV substation

Existing substation owned by POWERGRID, and it will be expanded

(i) One line bay for 400 kV S/C to Salem

ANNEX EPage I of 2

ANNEX 2E



THE EAST-NORTH INTERCONNECTOR II AND THE EAST-WEST INTERCONNECTOR I PROJECTS

1. This transmission system is associated with a proposed power plant development in Orissa by the Consolidated ElectricPower Asia (CEPA), a private sector developer. The transmission will be implemented in two phases. Phase I is to transfer powerfrom the power plant to the Western region: Gujarat State Electricity Board (GSEB) and Madhya Pradesh State Electricity Board(MPSEB). Phase II is to transfer power to the Northern region: Haryana State Electricity Board (HSEB), Haryana TransmissionCorporation (TRANSCO), Rajasthan State Electricity Board (RSEB) and Punjab State Electricity Board (PSEB).

Phase I

2. The transmission system for this Phase comprises the following components:

Transmission Lines

(a) Generating station - lb Valley, Orissa 400 kV double circuit (D/C) with quad conductors; 20 km

(b) lb Valley - Raipur 400 kV with two D/I; 250 km

(c) Raipur - Itarsi (via intermediate substation) 400 kV D/C; 500 km

(d) Nagda - Dehgam 400 kV D/C; 600 km

(e) Nagda - Nagda interconnection 400 kV D/C; 5 km

Substations

(a) Degham I x 315 MVA, 400 kV/220 kV transformer with associated terminal bays

(b) Itarsi 2 x 315 MVA, 400 kv/220 kV transformers with associated terminal bays

(c) New switching substation at an intermediate point between Raipur and Itarsi and at Nagda along with associated bays.

The system will have reactive compensation (under review by POWERGRID)

Phase II

Transmission Lines

(a) Generating station - lb Valley, Orissa 400 kV D/C with quad conductor; 20 km

(b) lb Valley - Jaipur 3000 MW ± 500 kV high voltage direct current (HVDC) bipole; 1200 km

(c) Jaipur - Hissar 400 kV D/C; 280 km

(d) Hissar Pechowa 400 kV single circuit(S/C); 135 km

(e) Patiala - Malerkotla 400 kV S/C; 40 km

(f) Malerkotla - Ludhiana 400 kV S/C; 55 km

(g) Jallandhar - Ludhiana 400 kV S/C; 75 km

ANNEX EPage 2 of 2

(h) lb Valley - Rourkela 400 kV D/C; 160 km

Substations

(a) Bhiwadi 2 x 315 MVA, 400 kV/220 kV transformers along with LILO of 400 kV S/C Ballabgarh - Jaipur atBhiwadi

(b) Pehowa 2 x 315 MVA, 400 kV/220 kV transformers along with LILO of 400 kV S/C Dadri - Malerkotla at Pehowa

(c) Patiala 2 x 315 MVA, 400 kV/220 kV transformers along with LILO of one circuit of 400 kV DIC Nalagarh -Hissar at Nalagarh

(d) Ludhiana 2 x 315 MVA, 400 kV/220 kV transformers

(e) Jaipur 2 x 315 MVA, 400 kV/220 kV transforners

The system will have reactive compensation (under review by POWERGRID)

ANNEX 3Page I of I

ANNEX 3


ESTIMATED PROJECT COSTS(1997-2003)

Project Component Loeal| Foreign Total. : . <--+---US $ million------------------

l. System Coordination and Control 153 230 3842. Transmission System Development 1,510 2,2650 3,7753. Joint Ventures (POWERGRID's inputs) 36 0 364. Other POWERGRID's Investments 27 0 275. Institutional Development, Technical Assistance and Training 0 18 18

Total 1,727 2,513 4,240

Physical Contingencies 188 282 470Price Contingencies 391 586 977

Total Project Cost 2,306 3,381 5,687

ANNEX 4Page 1 of 4

ANNEX 4


COST BENEFIT ANALYSIS SUMMARYPOWERGRID's INVESTMENT

Base Case (In Rs Million)(Time Slice 1998-2003)

Year Investment O&M Revenue Net Benefit

1992 18 -18

1993 170 -170

1994 1,543 -1,543

1995 2,802 -2,802

1996 6,534 -6,534

1997 7,535 -7,535

1998 9,691 -9,691

1999 16,951 289 4,429 -12,811

2000 23,535 746 7,756 -16,525

2001 23,006 1,153 12,931 -11,228

2002 22,807 1,815 16,744 -7,879

2003 11,029 2,595 23,033 9,410

2003 4,400 2,989 29,244 21,855

0 2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,2552,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

2,989 29,244 26,255

NPV with Discount Rate 12% 20,972

l 1 ERR 17.2%

ANNEX 4Page 2 of 4

ANNEX 4


ERR & SENSITIVITY ANALYSIS

20 00%

18.00%

16.00%

14-00%

12.00%

10.00%

8.00%

6.00%/

4.00%

0.00%

0 1 3 4 5 6

SCENARIO

0: BASE CASE

1: INVESTMENT UPBY 10%

2: O&M COST UP BYJO0%

3: 1& 2

4: REVENUE UP BY IO%

5: 1&4

6:2&4

ANNEX 4Page 3 of 4

ANNEX 4


COST BENEFIT ANALYSIS SUMMARY

POWERGRID'S INVESTMENT

Base Case (In Rs Million)(Time Slice 1998-2003)

Year Investment O&M Revenue Net Benefit

1992 15 -151993 163 -1631994 1,616 -1,6161995 3,136 -3,1361996 7,755 -7,7551997 9,472 -9,4721998 12,633 -12,6331999 23,593 343 5,255 -18,6822000 34,997 945 9,831 -26,112

2001 36,372 1,553 17,425 -20,5002002 38,314 2,599 23,975 -169,938

2003 19,675 3,946 35,024 11,403

2004 8,353 4,836 47,318 34,1294,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,4824,836 47,318 42,482

NPV with Discount Rate 13.5% 23,765______ _ L__________________________ _ . __FRR 18.4%

ANNEX 4Page 4 of 4

ANNEX 4


COST BENEFIT ANALYSIS SUMMARY

FRR & SENSITIVITY ANALYSIS

25.00%

20.00%

15~00%

20 00%

o 1 2 3 4 s 6

SCENARIO

0: BASE CASE

1: INVESTMENT UP BY 10%

2: O&MCOSTUPBY10%

3: 1 & 2

4: REVENUE UP BY10%

5: I & 4

6:2&4

Second POWERGRID System Development Project

Financial Summary for Revenue Earning Project Entities

IS Million)

DESCRIPTION FY ending <-Actual > t --orcast------------- > AverageMarch 31st 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Ann] Grwth

INCOME STATEMENT ITEMS

Revenues 202 206 256 293 295 411 519 605 749 859 1,054 1,251 1,348 1,556 1,965 32.4%

Operating Income 128 107 118 141 141 238 310 368 459 517 621 720 792 955 1,235 32.0%

Net Profit 75 60 66 82 85 152 207 240 303 346 402 474 555 706 942 36.8%

FUNDS STATEMENT ITEMS

Total Internal Cash Generation 172 156 209 234 227 322 427 502 638 730 902 1.098 1,174 1.360 1.693 33.5%

Equity Contributions 569 329 26 6 9 0 0 0 0 0 0 0 0 0 0

Capital Receipt 0 25 57 41 12 0 0 0 0 0 0 0 0 0 0

Total Borrowings 773 32 132 281 339 345 620 728 740 799 732 609 576 461 226 5 6%

Total Sousres 1,514 546 424 562 596 667 1.047 1,229 1,378 1,529 1,633 1.697 1,751 1,822 1,920 12.2%

Capital Expenditure 1,384 405 296 465 453 499 786 1,042 1,089 1,101 1,171 1,176 1.203 1,227 1,238 9.9%

Increase Decrease) in Working Capital 41 37 34 -1 12 -28 -50 -49 -8 0 -10 7 7 15 32 0.0%

Total Debt Service 89 104 94 97 122 196 311 237 296 428 473 513 541 580 649 30.3%

Total Applicatio 1,514 546 424 562 586 667 1,047 1,229 1,379 1,529 1,633 1,697 1,751 1,822 1,920 12.2%

BALANCE SHEET ITEMS

Total Current Assets 216 289 305 329 324 276 294 312 323 330 349 365 377 401 447 10.3%

Less Current Liabilities 112 149 131 166 159 147 223 294 313 320 350 358 363 372 387 17.9%

Net Fioed Assets in Operation 1,076 1,238 1,401 1,353 1,199 1,690 1,902 2,620 3,092 4,306 5,750 5,760 5,595 6,313 7,678 27.4%

WIP 339 542 627 920 1,260 1,106 1,442 1.558 1,996 1,471 812 1,487 2,308 2,340 1,650 32.3%

Total Fioed Assets 1,415 1,780 2,029 2,274 2.459 2,795 3,344 4.178 4,989 5,777 6,563 7,248 7,902 9.8653 9,328 27.4%

Total Assets

Total Equity 664 1,073 1,217 1,275 1,292 1,376 1,500 1,665 1.885 2,144 2,452 2,809 3,255 3,866 4,682 27.1%

Long-term Debt 855 847 995 1,162 1,331 1,547 1,916 2,532 3,114 3,643 4,111 4,446 4,662 4,615 4,706 26.4%

Total Equity & Liabilties 1,519 1,920 2,202 2,437 2,623 2,924 3,415 4,197 4,999 5,797 6,562 7,255 7,916 9,681 9,388 26.4%

FINANCIAL RATIOS

Operating Ratio I%1 36.45 41.83 53.10 52.29 51.97 42.11 40.32 39.11 38.76 39.80 41.13 42.47 41.26 39.64 37.16

Net I-come as a % of Revenue 37.3% 29.0% 25.6% 28.1% 29.9% 36.9% 39.8% 39.7% 40.5% 40.2% 38.1% 37.9% 41.1% 45.4% 47.9%

Return on Capital Employed (%) 12.0 8.4 8.0 9.4 10.1 15.3 16.8 16.3 16.3 14.2 12.6 12.9 14.2 16.2 17.8 9V

Self Financing Ratio (3 year Avg.) 0.0 0.1 0.2 0.3 0.3 0.2 0.3 0.3 0.3 0.3 0.4 0.5 0.5 0.7 0.7 0 >

Debt Service Coserage 1.9 1.5 2.2 2.4 1.9 1.7 1.4 2.1 2.2 1.7 1.9 2.1 2.2 2.4 2.6 co

Expenditure Financed by IR 0.0 0.0 0.3 0.3 0.2 0.3 0.2 0.3 0.3 0.3 0.4 0.5 0.5 0.6 0.9

Current Ratio 1.9 1.9 2.3 2.0 2.0 1.9 1.3 1.1 1.0 1.0 1.0 1.0 1.0 1.1 1.2 0

Debt:Equity Ratio 56/4 44/5 45/5 4815 51/49 53/47 56/44 60/40 62/38 63/37 63/37 61/39 59/41 55/45 50/50 -+)_. LA

Scenario- Base Case

INDIA RETURN 19.5%Domestic Isflation only.

POWER GRID CORPORATION OF INDIA Ltd.(POWERGRID) 9th Plan Cost Rs.M 192,065---- ---- --- --- --- - -- ---- --- -- - --- ---- ---- --- --- - - -D npreciatio 6 .0 %

INCOME STATEMENT

SUMMARY POWERGRID (Rs.Million) 06-Apr-98

DESCRIPTION FY ending 1991-92 <-- ----- Actual---------> ----- ----- > <---------- --------------- Projected --------------- ------------ --------- - -------------- ------------ --------------- ------ >

March 31st Actual 1992-93 1993-94 1994-96 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Operating Revenues:Transmission Charges 0 5.623 5,585 7,169 8,612 9,342 13,656 18,911 23,483 31,075 37,624 48,671 60,967 68,499 81,689 107,047

Other Income ('1) 217 717 902 931 1,224 1,239 1,813 1,813 1,813 1,813 1,813 1,813 1,813 1,813 1,813 1,813

TOTAL OPERATING REVENUES 217 6,341 6,487 8,099 9,836 10,582 15,469 20,723 25,296 32,888 39,436 50,483 62,780 70,311 83,501 108,860

Operating Expenses:Operation and Maintenance 233 559 479 893 1,158 1,344 1,718 2,062 2,664 3,272 4,318 5,664 6,555 7,438 8,871 13,397

Salary and Wages 125 257 239 447 579 672 859 1,031 1,332 1,636 2,159 2,832 3,277 3,719 4,435 6,699

Operation Consumables & Spares 36 104 96 179 232 269 344 412 533 654 864 1,133 1,311 1,488 1,774 2,679

Administration Expenses 72 193 144 268 347 403 516 619 799 981 1,295 1,699 1,966 2,231 2,661 4,019

Depreciation 0 1,382 1,666 2,891 3,220 3,320 3,380 4,880 5.815 8,063 9,965 13,688 18,699 20,163 21,978 25,626

Electricity Duty 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Purchase of Power I Misc. Expenses 0 370 569 517 766 835 1,416 1,416 1,416 1,416 1,416 1,416 1,416 1,416 1,416 1,416

TOTAL OPERATING EXPENSES 233 2,311 2,713 4,301 5,143 5,499 6,514 8,357 9,895 12,751 15,699 20,768 26,669 29,017 32,265 40,439

Operating Income Before Interest -16 4,025 3,384 3,739 4,726 5,054 8,955 12,366 15,401 20,137 23,738 29,715 36,110 41,294 51,236 68,420

Non Operating Income (Net)Interest Chargeable to Revenue 2 1,659 1,505 1,663 1,966 1,997 3,253 4,123 5,375 6,840 7,885 10,487 12,334 12,404 13,374 16,267

Profit before Tax -18 2,366 1,879 2,076 2,760 3,058 5,702 8,243 10,026 13,297 15,853 19,228 23,776 28,890 37,863 52,154

Less:Provision for Tax 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Profit after Tax -18 2,366 1.879 2,076 2,760 3,058 5,702 8,243 10,026 13,297 15,853 19,228 23,776 28,890 37,863 52,154

Prior period Income *3 0 -5 -390 -59 34 -28 0 0 0 0 0 0 0 0 0 0

Net Profit -18 2,366 1,879 2,076 2,760 3,058 5,702 8,243 10,026 13,297 15,853 19,228 23,776 28,890 37,863 52,154

Dividend 0 0 50 50 100 200 200 200 200 200 200 200 200 200 200 200

Tax on Dividend 20 20 20 20 20 20 20 20 20 20 20

Retained Earnings -18 2,366 1,829 2,026 2,660 2,838 5,482 8,023 9,806 13,077 15,633 19,008 23,556 28,670 37,643 51,934

Average Net Fixed Assets (Historic) 30,922 36,431 41,719 44,887 44,198 53,301 69,753 92,772 122,693 166,694 236,552 282,304 290,458 315,225 382,035

Rate of Return on Historic Assets (%) 13 9 9 11 11 17 18 17 16 14 13 13 14 16 18

Return on Capital Employed I%) 12 8 8 9 10 15 17 16 16 14 13 13 14 16 18

Operating Ratio I%) 36 42 53 52 52 42 40 39 39 40 41 42 41 39 37

I-ll Includes preliminary expenses,bonds expenses,rebate to customer and contingencies.

('2) Includes transfer values of assets, from NTPC, NHPC and NEEPCO, as on April 1, 1992.BROAD ASSUMPTIONS:

i) Depreciation 6.0%ii) Return on Equity 19.5% (including 3.50% incentive)

iii)The depeciated normative Equity kept constant for assets commisioned before 1.4.97 and actual equity employed in projects commissioned afterwards

('31) For 1993-94, Income from NLC TL Assets (Rs.150 Mn.) and Interest saving due to Capital Restructuring (Rs.700 Mn.) during 1992-93,

and, reduction in income (Rs.949 Mn.) in 1992-93 due to 10% Return on Equity and New Tariff.

4 CA

Scenario- Base CaseINDIA RETURN 19.5%

----- Domestic Inflation only.POWER GRID CORPORATION OF INDIA Ltd.(POWERGRIDI 9th Plan Cost Rs.M 192,065

--------------- --------- ---- --------------- --------------- Depreciati 6.0%

SOURCES AND APPLICATION OF FUNDS

SUMMARY POWERGRID iRs.Million) 06-Apr-98

DESCRIPTION FY ending 1991-92 <- Actual--- - > <- -Projected- - - - - Projected- - > 9th Plan 10th Plan

March 31s Actual 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total Total

Operating Income before interest -16 4,025 3.364 3,739 4.726 5,054 8,955 12,366 15,401 20,137 23,738 29,715 36,110 41,294 51,236 68,420 80,596 226,776

Depreciation 0 1,362 1,666 2,891 3,220 3.320 3,380 4,880 5,815 8,063 9,965 13,668 18,699 20,163 21,976 25,626 32,103 100.155

Total Internal Cash Generation -16 5,407 5,050 6,630 7,946 8,375 12,335 17,246 21,216 28,201 33,703 43,403 54,809 61,458 73,215 94,047 112,699 326,931

Equ,ty Contributions 611 17,881 10,399 831 200 278 0 0 0 0 0 0 0 0 0 0 0 0

Capital Receipt 0 0 803 1,813 1,372 441 0 0 0 0 0 0 0 0 0 0 0 0

BorrowingsLoans Contracted 377 18,256 -1.972 3,025 6,656 8.060 9,760 13,021 9,541 7.682 4,606 62 0 0 0 0 45,010 62

Bonds 2,000 6,000 2,994 1,160 2,771 4,079 3,000 0 0 0 0 0 4,000 4,000 4,000 4,000 3,000 16,000

Loans to be Contracted 0 0 0 0 0 0 332 11,632 20,885 24,664 31,929 35,029 26,651 26,149 20,848 8,279 89,441 116,956

Total Borrowings 2,377 24,256 1,022 4,185 9,427 12,136 13,092 24,653 30,426 32,546 36,735 35,111 30,651 30,149 24,846 12,279 137,451 133,038

Revaluation of loans due to FOREXVar,ation 1,367 633 1,576 -315 -1,042 1,668 1,727 3,626 4.398 5,633 6,802 9,149 5,706 8,265 9,576 17,053 39,496

TOTAL SOURCES 2,972 48,911 17,907 15,035 18,629 20,190 27,096 43,625 55,269 65,144 76,071 85.316 94,609 97,312 106,326 115,902 267,203 499,467

APPLICA TION OF FUNDS

Investment Programnme:Capital Investment 973 3,529 7,701 8,317 13,795 13,399 15,440 26,256 41,044 45.433 47,306 53,759 57,108 59,660 62,964 68,148 177,479 301,636

Interest During Constructionl 1) 0 39,939 5,077 1,054 1,801 2,837 3,360 3,096 2,553 2,366 3,211 2,310 1,918 3,067 2,863 464 14,586 10,622

Total Investment 973 43,468 12,778 9,371 15,596 16,227 18,801 31,352 43,597 47,800 50,516 56,068 59.026 62,728 65,827 68.612 192,065 312,261

Capitalisation of FOREX Variation 1,367 633 1,576 -315 -1,042 1,668 1,727 3.626 4,398 5,633 6,802 9,149 5,706 8,265 9,576 17,053 39,498

Debt ServiceInterest Charged to Operations 2 1,659 1,505 1,663 1,966 1,997 3,253 4,123 5,375 6,840 7,885 10,487 12,334 12,404 13,374 16,267 27,475 64,865

Amortization of Loans 0 748 843 976 1,304 1,433 2.141 4,160 2,744 3,390 6,068 9,164 13,459 15.618 17,769 19.729 18,504 75,939

Amortization of Bonds 0 394 939 327 0 942 1,994 4,134 1,792 2,781 5,692 3,000 0 0 0 0 16,394 3,000

Total Debt Service 2 2,801 3,287 2,966 3,270 4,372 7,388 12,417 9,911 13,011 19,645 22,651 25,793 28,223 31,143 35,995 62.373 143,805

Dividend on Share Capital 0 0 50 50 100 200 200 200 200 200 200 200 200 200 200 200 1,000 1,000

Working Capital 1,996 3,272 4,431 5,502 5,480 5,894 4,912 2,820 735 450 506 81 502 938 1,811 3,309 9,422 6,641

Increase (Decrease) in Working Capita 1,996 1,275 1,159 1,072 -22 414 -982 -2,091 -2,086 -285 57 -425 420 436 873 1,498 -5,398 2,803

Provision for Tax 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1

Tax on dividend 0 0 0 0 0 20 20 20 20 20 20 20 20 20 20 20 100 100

TOTALAPPLICATION OF FUNDS 2,972 48,911 17,907 15,034 18,629 20,190 27,095 43,625 55,269 65,144 76,071 85,316 94,609 97,312 106,328 115,902 267,203 499,467

Contribution to Construction (Annual) - 1.7% 4.3% 27.1% 29.5% 20.9% 30.4% 21.4% 30.2% 31.9% 27.3% 37.4% 48.1% 51.9% 62.3% 82.1% 28.4% 57.4%

Contribution to Construction (3 year - 2.2% 5.8% 20.4% 25.6% 27.1% 23.8% 27.3% 29.6% 29.7% 29.5% 38.1% 46.1% 54.3% 65.9% 72.4%

Debt Service Coverage - 1.9 1.5 2.2 2.4 1.9 1.7 1.4 2.1 2.2 1.7 1.9 2.1 2.2 2.4 2.6 1.8 2.3

NetIR Application to Inve Formula 720 554 2,542 4,597 3,389 5,709 6,699 13,170 15,254 13,781 20,957 28,375 32,579 40,979 56,333 54.614 179,223

Net Internal Cash Generation 418 2,820 2,028 5,306 4,223 4,425 6,899 13,390 15,496 14,047 21,250 28,697 32,933 41,368 56,762 54,259 181,011 It

(-1) Includes transfer values of assets, from NTPC, NHPC and NEEPCO, as on April 1, 1992. 9 >fi

0°

INDIA Scenario- Base CaseRETURN 19.50%

POWER GRID CORPORATION OF INDIA Ltd.tPOWERGRID) Domestic Inflation only.-------------- ------------ -- -------------- --------------- -- ------------ 9th Plan Cost Rs.M 192,065

BALANCE SHEET Depreciati 6.00%

SUMMARY POWERGRID IRs.Millionl 06-Apr-98

DESCRIPTION FY ending 1991-92 <----------Actual -- -,> <------------ -------------- Projected --------------- ----- ------- ---- Projected ------- ----- >

March 31s Actual 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07-- -- - - -- - - - - - - - - - - -- .... .. .. - - - - -I.... .. .. .. ... -- - - - - - - - - - - - - - - - - - - - - - - - - - . - - - - - - - - - - - - . . . .-- - -- - -- - -- -- -- -- - -- -- I- -- -- --- -- - -- - -- - ----- --- ----- ----- ------ --- -- -- - -- -

ASSET

Gross Block 56 35,206 42,287 50,665 54,917 55,822 79.629 96,986 136,563 170,705 242,594 334,074 366.484 389,244 458,160 570,470

Less:Depreciation 0 1,416 3,215 6,300 9.508 12,835 16,215 21,094 26.909 34,973 44,938 58.626 77,325 97,488 119,467 145,093

Net Fixed Assets in Operation 55 33,790 39,072 44,365 45.409 42,987 63,614 75.891 109,653 135,732 197,656 275,448 289,159 291,756 338,693 425,377

WIP

Capital Works in Progress 640 7,541 13,071 13,164 24,676 36,557 33,726 46,964 53,080 67,525 54,933 32.045 60,657 97,196 101,337 74,040

Stores & Advances 100 2,941 3,945 6,626 6,139 8.548 7,840 10,525 12,054 15,665 12.517 6,795 13,948 23,083 24,118 17.294

MiscellaneousAssets 177 155 83 71 64 61 61 61 61 61 61 61 61 61 61 61

Total Fixed Assets 973 44,426 56,171 64,227 76,288 88,152 105,241 133,440 174.848 218,983 265,167 314,349 363,825 412,096 464,209 516.771

Current AssetsCash and Bank Balance 1,411 1,108 3.374 1,740 2,449 3,284 2,000 2.200 2,420 2,662 2,928 3,221 3,543 3,897 4,287 4,716

Short Term deposits 611 0 0 0 0 0

Receivables 0 3,365 1,191 2,982 4,075 4.207 4,429 4,383 4,340 4,626 4,826 5,396 6,068 6.371 7,152 8,947

Inventories 8 498 609 717 1,074 1,084 1,256 2,094 2,912 3,193 3,374 3,745 3,943 4,190 4,397 4,583

Loans & Advances l-1 506 1,763 3,890 4.096 3,339 2,807 2,526 2,779 3,057 3,363 3,699 4,069 4.475 4,923 5,415 5,957

Other Current Assets/Debtors 21 47 70 110 116 225 247 272 299 329 362 398 438 482 530 583

Total CurrentAssets 2.556 6,780 9.134 9,646 11,053 11,606 10,458 11.729 13,029 14,172 15,189 16,829 18,468 19.864 21,782 24,787

TOTALASSETS 3,529 51,206 65,305 73,873 87,341 99,758 115.699 145,169 187.877 233.155 280,356 331,178 382.293 431,959 485,991 541,557

Equity i'2)

Share Capital Issued 511 711 2.881 27,499 28.294 28,572 30.200 30,200 30,200 30,200 30,200 30,200 30,200 30,200 30,200 30,200

Share Deposit 100 17,781 26,010 2,224 1.629 1,629 0 0 0 0 0 0 0 0 0 0

Retained Earnings -18 2,218 4,850 8,309 11,621 13,778 19,127 27.227 35,948 49,326 66,951 87,159 110,715 138,985 175.827 226,561

Bonds Redemption Reserve 0 130 130 510 1,230 2,352 2,485 2,407 3,492 3,192 1,200 0 0 400 1,200 2,400

Total Equity 593 20,840 33,871 38,541 42,773 46,330 51,812 59,835 69.641 82,718 98,351 117,359 140,915 169,585 207,228 259,161

L.T. Debt 121

LoansContracted 377 19,252 17,070 20,695 25,731 31,315 40.934 63,153 94,462 128,015 164,315 197.064 219,405 235,441 248,786 244,912

Bonds 2,000 7.606 9,661 10,494 13.265 16,402 17,408 13,274 11,481 8,700 3,008 8 4.008 8,008 12.008 16,008

0 0 0 0

Total Long Term Loans 2,377 26,858 26,731 31.189 38,996 47,717 58.342 76,427 105,943 136,715 167,323 197,072 223,413 243,449 258,794 260,920

0 0 0 0 0

Long-term Debt 2,377 26,858 26,731 31,189 38.996 47,717 58.342 76,427 105,943 136,715 167,323 197,072 223,413 243,449 258,794 260,920

Current LiabilitiesCash Credit(overdraftl 0 110 0 77 7 0 0 0 0 0 0 0 0 0

Other Current Liabilities 560 3,398 4,703 4,067 5,565 5,712 5,546 8,908 12,294 13,723 14,683 16,748 17,966 18,926 19,971 21,477

0 0 0 0

Total Current Liabilities 560 3,508 4,703 4,144 5,573 5,712 5,546 8,908 12,294 13,723 14,683 16,748 17,966 19,926 19,971 21,477

Total Debt 2,937 30,367 31,434 35,333 44,569 53,429 63,888 85,335 118,237 150,438 182,007 213.820 241,379 262,375 278,764 282,397

TOTAL EQUITY AND LIABILITIES 3.529 51,206 65,305 73,874 87,342 99,759 115,701 145,170 187,878 233,156 280,358 331,179 382,294 431,960 485,992 541,558

Debt:Equity Ratio 80120 56/44 44/56 45/55 48/52 51/49 53/47 56/44 60/40 62/38 63/37 63/37 61/39 59/41 56144 50/50

Current Ratio 1.9 1.9 2.3 2.0 2.0 1.9 1.3 1.l 1.0 1.0 1.0 1.0 1.0 1.1 1.2

Central appropriation 3 302.5 477 418.8 338.7 338.1 338.1 338.1 316.4 303.4 288.5

Accounts Receivable (# of days) - 194 67 134 151 145 104 77 63 51 45 39 35 33 31 30 1t

Check digit Row -0.3 0 0 -1 -1 -1 -1 -1 -1 -1 -1 -1 -l -1 1 -1 t

Accounts Receivable (# of days)l (I Central apptn. is adjusted in one go) 30 30 30 30 30 30 30 30 30 30

(11) For 93-94 to 97-98. Central Apprtn. of Rs. 3021.5 Mn. in 4 equal instal (-2) Include Conversion of Rs.5,6

75 Mn. of Loans into E ('3l Outstanding of Rs3459.6 million is neutralised thru Central apropriation °

ANNEX 6Page I of 4

ANNEX 6


PROCUREMENT AND DISBURSEMENT ARRANGEMENTS

Procurement

Procurement methods (Table A)

Prior review thresholds (Table B)

Disbursement

Allocation of loan proceeds (Table C)

Use of statements of expenses (SOEs): Not to be used under the project

Special account: US$20 million

ANNEX 6Page 2 of 4

ANNEX 6


TABLE A: PROJECT COSTS BV PROCUREMENT ARRANCEMENTS(in USS million equivalent)

Expenditure Category Procurement Method ]Total Cost(including

V_: _______________________________ ______________i__ :__________::::__: cE E ; W: i: f eon tin gen cies)

ICB NCB Other N.B.F.............. .......................................... ,..................., ........................... ..........

1.. ..... .................................... ............ ........................................... ............. ................................. ......... ...................... ......... ............ ......

444 296 739(97) (97)

2. Goods2,047 1,365 3,412(347) (347)

3. Services

4 cias---.................. ......................... . .. . . ........ .. .. . .. . .. .. . .. ................ .. . .. .. .................. . .. . .. . .......... .. . .. . .. . . ....... .. . .. . . .. . .. . ..22 589 611(6) (6)

, ~~~~~~.,,,,,,,,,,,,,,,,,,.......... ................................ ,,,,,, ..... ..------- --------------------------.. ... ..... ,....... ----------,., .., ,, ...,,,, 4. Miscellanous f',,,.,,., ., ......,,,.... ...,,............................... . ......... ................. .............. ........ . .. .. ... .. ...

Tota 2,491 22 3,174 5,687

.___________________________ _ .(444) (0) (6) (0) (450)

ANNEX 6Page 3 of 4

TABLE B: THRESHOLDS FOR PROCUREMENT METHODS AND PRIOR REVIEW

Expenditure Contract Value Procurement Contra¢ts Subject toCategory (Threshold) Method Prior Review

.USS mWn .ZNumbers / US$ million

1. Civil Works, > 3.5 ICB 20/67...... ................................................ ... .............................................................. ............................................. ................. ..............................................Installation and

Erection.............................................................. ........ .............................I........................ ........ ......... .........I................................... ................. ......... .................................

................ '''.o.'''''''''''''''''''''''' ............... ............................................. ....- ......................................... ........................................... ........................................................... ................ .............................................................. ................ .............................................. ................ ................ ..............................

............... .....I........................................ ................ ..................... ...................... ..............I.,........................I...................... .......... ........I.......... ........... .....Supply > 3.5 ICB 7/95Supply & Erection > 3.5 ICB 20/239.............................................................. .............................................................. .............................................................. ............................... ...............

............................................................... .......... .......................... ......................... ........... .......... ......................................... ..................... .......... ....... .......................

......... ........................................... ................ .............................................. .............................................................. ..............................................3.Sries as per Bank guidelines 2/6........................ .............................. ................ .............................................................. ................ .............................................. ................ ................ ..............................

4Msc,,,,,,.................... .......................................... .................... ..................... ..................... ......................................... ..................... ................. ...............................I.....

.............................................................. .......... .................................................... .......... .......... .......................................... .............I....... .......... ...................................... .... ........ ................................... ................ .............................................. .............................................................. ........................................

Total *** 29/407 ***........ ............... ......... I................ ................... ......................... .............................................................. ...............................................................

*** Excludes the US$40 million provision for carry-over payments from Ln. 3237-IN and Ln. 3577-IN (contracts alreadyawarded, loans to close by September 1999 and June 2000, respectively).

Notes:

Procurement has been packaged, based on experience gained from ongoing POWERGRID projects, into:

22 supply & erection contracts (value divided in the table above between the two elements) and 7 supply contacts. All to beawarded through International Competitive Bidding. Tender documents have been approved for 17 of the 22 contracts, theremaining five (for Western region coordination and control system) expected by mid-1998.

Thresholds. Prior review of bid documents and approval of all contracts would be mandatory for:

all contacts, works and good, of US$3.5 million or more (same as agreed under Ln. 3577-IN and also under Ln. 3237-IN, as agreedon transfer to POWERGRID) and consultant contracts of US$ 100,000 or more.

As indicated in the table above, 29 contracts for US$407.5 million will be in excess of these thresholds for prior review. Thisreflects the packaging into high-value contract, few in number, and exclusive use of ICB procurement. Two contracts, for aboutUS$1.5 million and US$1.0 million, fall below the US$3.5 million threshold.

ANNEX 6Page 4 of 4

TABLE C: ALLOCATION OF LOAN PROCEEDS

t; 0 0 tt xt t001BtpendittureCategoryV 000 i0;: 00 Amount in US$ Financing Pereentagemillion

1. Civil Works, Installation i.... ..and Erection 90 70 percent........................ ..........................................._.......... ........... ...................... ........... ................ ........................ ........ ............ ............................ .............,,,,,,

.......................................................... ............................................. .................... .............. ........................................ ................................................ ....... ...................Component I - System Coordination and Control 15Component 2 - Transmission System Development 75................................................................................................................................ ................ .................... .......................... .... ........ ...... .......... ................................

...................................................................... ............................................. ..................... ......................... ... ................... .......................... ....... ..............................

2. Goods -- -- -- ---- -325 100% of foreign............................................................................................. ...................... ..................... .... ............................................ ................... ...........................

expenditures, 100% of..................... ........................................................ ...................... .................... .................. .............................. ....................... .......................................................................XComponent 1- System Coordination and Control 75 local expenditures (ex-Component 2 - Transmission System Development 250 factory cost) and 80

..................................................................... .............................................. ..................... ................. ............................... .... ............ ....... ....... . . ............

percent of other local......................................... .......................................................................... -.................... .................. .................... ......... ................................. .........

expenditures for other................................ ........................... ............................................................................ .............................................. . .......................................... .. ................tmrcr oitems procured locally......................................................................................................................................... ..................................... ............ ........................... ......... ........... .......................

................... ..... ............................................................... ....................... ...... ......... ...... ................................................ .................... ..............I............3. Services 5 100 percent....................................I.....................I.................................. ............................................. .................................... ............. ................... ...........I..... ........... .......................

Component 5 - Institutional Development and Training 5.......................................................................................................................................... .................................... ............. .................- ............ ....... ........... ....................

........... .................................I............................................. .............. .................................. ............. .................... . ..... .......................................... ...... ................Unallocated 0. ............... ......... .......... 30

......................................................................................T................................................... .......................... ................................................ ................................................................................................................................. .................. ................... ..... ..I....................... .................. ......I............ ............ ....... .............................. .... ..................................................................... I...................... I.................... ................... ............................. .................... ............ ..................

Total 400

ANNEX 7Page I of I

ANNEX 7


PROJECT PROCESSING BUDGET AND SCHEDULE

A. Project Budget (US$000) Planned Actual(At final PCD stage, 9/95)

339 260

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months)First Bank mission (identification) 07/10/1995 07/10/1995Appraisal mission departure 11/15/1995 01/18/1998Negotiations 04/15/1996 04/15/1998Planned Date of Effectiveness 07/15/1996 07/31/1998

Prepared by: POWERGRID

Preparation assistance: Consultants funded under ongoing Bank loans (institutional development, transmissionplanning studies, and preparation of system coordination and control projects), Japan PHRD trust funds for privatepower development and state power reform (advice on private transmission and central & state-level regulation), ADB(technical assistance for a study of bulk power and transmission tariffs and regulation)

Bank staff who worked on the project included: Ramon Lopez-Rivera (Power Engineer Consultant), SyedAhnned (Senior Counsel, LEGSA)i Lennart Carlsson (Power Engineer, SASEG), Asger Christensen.(Sociologist, SASSD), Mobinder Gulati (Senior Financial Analyst, SACND), Pratima Kochar (Administrative-Secretary, SACND), Lars C. Lund (Sociologist, EAPSD), Cecil Perera (Senior Disbursement Officer, LOAAS),Harvey Salgo (Private Power Consultant), Vivi Scott (Senior Staff Assistant, SASEG), Ritin Singh(Telecommunications Specialist, SASEG), Rajesh Sinha (Financial Analyst, SACND), Tjaarda Storm vanLeenwen (Senior Financial Analyst, SASEG , Sam Thangarai (R&R Specialist, SACND), Sanjay Vani(Financial Management Specialist, SACND) Yaacov Ziv (Senior Environmental Specialist, SASEN), and KariNyman (Principal Energy Specialist, SASEG, as the Team Leader). Peer Reviewers were Jobn Besant-Jones(Senior Banker, EBRD, formerly Principal Economist, IENPD), Peter Cordukes (Principal Financial Analyst,TENPD): and John Irving (Senior Power Engineer EBRD, formerly Senior Power Engineer, EAPEG).

ANNEx oPage I of 2

ANNEX 8


DOCUMENTS IN THE PROJECT FILE*

A. Project Implementation Plans (PIPs)

Eastem Region System Coordination and Control Project, February 1997Western Region System Coordination and Control Project, May 1997East-North Interconnector 1, July 1997East-South Interconnector II, October 1997

East-North Interconnector II and East-West Interconnector I, PIP draft, July 1996

B. Planning Reports - underpinning POWERGRID's individual PIPs

Unified Project Strategy Report, ECC Inc., October 1994 - for system coordination and control projects

Conceptual Plan for Bulk Power Transmission through 2012, POWERGRID, July 1997

Transmission Planning Reports, Power Technologies, Inc. (PTI), mostly during 1995-1996:

e Review and Supply of Planning Toolsv Planning Methodology and Criteria+ Low-voltage Problems in the Southern Region+ Development of Power Transmission Plan & Review of System for 8th Plan Condition+ Development of Power Transmission Plan & Review of System for 9th Plan Condition+ Development of Power Transmission Plan for 10th Plan Condition+ Comparison of Characteristics of an HVAC-Dominated System, and HVDIC-Dominated System and Mixed, Parallel AC

and HVDC Systems+ 800 kV Transformer Reliability+ Multiarea Reliability Studies of POWERGRID Regional Interconnections* Review of Cost-Estimating Methods* Transmission Alternatives for Transmitting 20,000 MW from the Northeastern Region through the Chicken Neck* Static Var Compensators* Development of Power Transmission Development Plan. Review of Transmission System for CEPA Project+ Recommendations for Eliminating Breaker Insertion Resistors in POWERGRID 400 kV System

C. Environmental and Social Reports and Assessments

Environmental and Social Policy and Procedures (ESPP), April 1998National Consultation on POWERGRID's ESPP, June 1997Management of PCBs, India, October 1996 (World Bank study)

Environmental Assessment Reports:

Eastern Region System Coordination and Control Project, October 1996Western Region System Coordination and Control Project, October 1996East-North Interconnector 1, January 1997

East-South Interconnector 11, Initial Environment Report, January 1998

Environmental Issues in the Power Sector, main report (draft) and case studies

ANNEX 8Page 2 of 2

D. Other Reports by POWERGRID and its Consultants

POWERGRID Annual Report, 1995-96POWERGRID's Financial Statements, 1996-97POWERGRID, Joint Venture Group, January 1997POWERGRID's Financial Projections, April 1998 *

POWERGRID's ERR and FRR analysis, April 1998 *Institutional Development Study, Coopers & Lybrand, April 1996 - in Ln. 3577-IN files

E. Bank Staff Assessments

Mid-terrn Review of POWERGRID's Institutional Development, October 1996Energy Sector - Issues and Options, July 1996 (Green Cover ESW report)

*Including electronic files.

ANNEX 9Page 1 of4

ANNEX 9SECOND POWERGRID SYSTEM DEVELOPMENT PROJECT

Status of Bank Group OperationsIBRD Loans and IDA Credits in the Operations Portfolio

(As of March 31, 1998)

Difference Betweenexpected

Original Amount in US$ Millions and actual

Loan or Fiscal disbursements a/

Project ID Credit Year PurposeNo. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd

Number of Closed Loans/credits: 375

Active LoansIN-PE-10561 IBRD42960 1998 NATL AGR TECHNOLOGY 96.80 0.00 0.00 96.80 0.00 0.00IN-PE-10561 IDA30480 1998 NATL AGR TECHNOLOGY 0.00 100.00 0.00 99.43 0.00 0.00IN-PE-35160 IBRD42710 1998 HARYANA POWER APL-I 60.00 0.00 0.00 60.00 0.00 0.00IN-PE-35169 IDA30180 1998 U.P. FORESTRY 0.00 52.94 0.00 52.55 0.00 0.00IN-PE-38021 IDA30120 1998 DPEP III (BIHAR) 0.00 152.00 0.00 146.13 2.31 0.00IN-PE-49477 IDA30530 1998 KERALA FORESTRY 0.00 39.00 0.00 38.80 0.00 0.00IN-PE-SO638 IDA30130 1998 UP BASIC ED II 0.00 59.40 0.00 51.38 -6.69 0.00IN-PE-9979 IBRD42260 1998 COAL SECTOR REHAB 530.00 0.00 0.00 530.00 0.00 0.00

IN-PE-9979 IDA29860 1998 COAL SECTOR REHAB 0.00 2.00 0.00 2.02 0.00 0.00IN-PE-10473 IDA29360 1997 TUBERCULOSIS CONTROL 0.00 142.40 0.00 127.74 18.93 0.00IN-PE-10511 IDA29640 1997 MALARIA CONTROL 0.00 164.80 0.00 155.07 3.70 0.00IN-PE-10531 IDAN0180 1997 REPRODUCTIVE HEALTH1 0.00 248.30 0.00 234.88 11.20 0 00IN-PE-35158 IBRD41660 1997 AP IRRIGATION III 175.00 0.00 0.00 175.00 -12.32 0 .00IN-PE-35158 IDA29520 1997 AP IRRIGATION III 0.00 150.00 0.00 87.01 -12.32 0.00IN-PE-36062 IDA29160 1997 ECODEVELOPMENT 0.00 28.00 0.00 24.05 -.06 0.00IN-PE-43728 IDA29300 1997 ENV CAPACITY BLDG TA 0.00 50.00 0.00 43.84 .90 0.00

IN-PE-44449 IDA29420 1997 RURAL WOMEN'S DEV 0.00 19.50 0.00 18.19 3.60 0.00

IN-PE-45600 IBRD41140 1997 TA ST'S RD INFRA DEV 51.50 0.00 0.00 42.10 9.60 0.00

IN-PE-49301 IBRD41560 1997 A.P. EMERG. CYCLONE 50.00 0.00 0.00 50.00 14.70 0.00

IN-PE-49301 IDA29500 1997 A.P. EMERG. CYCLONE 0.00 100.00 0.00 88.62 14.70 0.00IN-PE-9995 IBRD41920 1997 STATE HIGHWAYS I(AP) 350.00 0.00 0 .00 337.65 -2.35 0.00

IN-PE-10480 IBRD39230 1996 B SEWAGE DISPOSAL 167.00 0.00 0.00 135.29 49.32 0.00IN-PE-10484 IBRD40560 1996 UP RURAL WATER 59.60 0.00 0.00 56.49 3.09 0.00IN-PE-10485 IDA127740 1996 HYDROLOGY PROJECT 0,00 142.00 0.00 110.04 29.10 0.00IN-PE-10529 IDA28010 1996 ORISSA WRCP 0.00 290.90 0.00 189.74 -18.68 0.00IN-PE-35170 IBRD40140 1996 ORISSA POWER SECTOR 350.00 0.00 0.00 333.61 23.61 0.00IN-PE-35821 IDA28760 1996 DISTRICT PRIM EDUC 2 0.00 425.20 0.00 368.98 19.74 0.00

IN-PE-35825 IDA28330 1996 STATE HEALTH SYS II 0.00 350.00 0.00 292.16 42.48 0.00

IN-PE-39935 IBRD39920 1996 ILFS-INFRAS FINANCE 200.00 0.00 0.00 175.00 43.00 0.00IN-PE-39935 IDA28380 1996 ILFS-INFRAS FINANCE 0.00 5.00 0.00 4.58 43.00 0.00IN-PE-43310 IDA28620 1996 COAL ENV&SOCIAL MIT. 0.00 63.00 0.00 53.42 6.55 0.00IN-PE-10461 IBRD39076 1995 MADRAS WATER SUP II 269.80 0.00 189.30 69.85 95.00 2.76

IN-P3-10463 IBRD37790 1995 INDUS POLLUTION PREV 93.00 0.o00 0.0 83.66 50.68 0.00

IN-PE-10463 IBRD37806 1995 INDUS POLLUTION PREV 50.00 0.00 0.o0 44.60 50.68 0.00IN-PE-10463 IDA26450 1995 INDUS POLLUTION PREV 0.00 25.00 0.00 23.04 50.68 0.00

IN-PE-10464 IDA26610 1995 DISTRICT PRIMARY ED 0.00 260.30 0.00 151.08 11.76 0.00IN-PE-10476 IDA27450 1995 TAMIL NADU WRCP 0.00 282.90 0.00 229.71 75.01 0.00

IN-PE-10489 IDA26630 1995 AP 1ST REF. HEALTH S 0.00 133.00 0.00 95.97 18.46 0.00IN-PE-10503 IDA26990 1995 AGRIC HUMAN RES DEVT 0.00 59.50 0.00 41.47 24.59 0.00IN-PE-10506 IDA27000 1995 MP FORESTRY o 00 58.00 0.00 33.26 4.23 0.00IN-PE-10522 IDA27330 1995 ASSAM RURAL INFRA 0.00 126.00 0.00 103.73 27.77 0.00IN-PE-10563 I1BRD38560 1995 FINANCIAL SECTOR DEV 350.00 0.00 0.00 200.00 -167.50 0.00IN-PE-10563 IBRD38576 199S FINANCIAL SECTOR DEV 144.00 0.00 0.00 132.49 -167.50 0.00IN-PE-10448 IDA25720 1994 FORESTRY RESEARCH 0.00 47.00 0.00 28.09 19.43 0.00

EDUCATIONIN-PE-10449 IDA25730 1994 ANDHRA PRADESH FORESTRY 0.00 77.40 0.00 38.28 9.97 0.00

IN-PE-10455 IDA26110 1994 BLINDNESS CONTROL 0.00 117.80 0.00 89.17 25.62 0.00IN-FE-10457 IDA26300 1994 POPULATION IX 0.00 88.60 0.00 59.40 11.06 0.00

IN-PE-34162 IDA25940 1994 MAHOARNSHTRA EARTHQUA 0.00 246.00 29.19 22.93 48.47 11.94

IN-FE-9870 IBRD37530 1994 CONTAINER TRANSPORT 94.00 0.00 0.00 82.42 68.43 0.00

IN-FE-9964 IDA25920 1994 WATER RES CONSOLID H 0.00 258.00 0.00 165.81 58.01 0.00IN-FE-10407 IDA24330 1993 ADP - RAJASTHAN 0.00 106.00 0.00 35.79 22.03 0.00IN-EE-10408 IDA24390 1993 BIHAR PLATEAU 0.00 117.00 0.00 74.43 72.63 0.00IN-PE-10410 IDA24490 1993 RENEWABLE RESOURCES 0.00 115.00 0.00 78.34 97.82 0.00

IN-EE-10416 IBRD35770 1993 PGC POWER SYSTEM 350.00 0.00 0.00 148.89 119.23 0 .00IN-PE-10418 IDA24830 1993 KARNATAKA WS & ENV/S 0.00 92.00 0.00 59.98 49.18 0.00

IN-EE-10423 IBRD36320 1993 NTPC POWER GENERATIO 400.00 0.00 0.00 147.89 147.90 0.00IN-PE-10424 IDA25280 1993 NATL LEPROSY ELIMINA 0.00 85.00 9.07 35.10 32.61 -4.46IN-PE-9955 IDA25090 1993 UTTAR PRADESH BASIC o 00 165.00 0.00 41.37 -9.69 -122.30

ANNEX 9Page 2 of 4

Difference Between

expectedOriginal Amount in US$ Millions and actual

Loan or Fiscal disbursements a/

Project ID Credit Year Purpose

No. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd

IN-PE-9959 IDA24090 1993 RUBBER 0.00 92.00 36.58 31.39 53.74 2.07

IN-PE-9961 IDA25100 1993 UP SODIC LANDS RECLA 0.00 54.70 0. 00 24.97 11.01 0 .00

IN-PE-9977 IDA24700 1993 ICDS II (BIHAR & MP) 0.00 194.00 0.00 145.22 79.00 78.95

IN-PE-10390 IDA23280 1992 MAHARASHTRA FORESTRY 0.00 124.00 16.18 53.01 58.49 38.62

IN-PE-10393 IDA23500 1992 AIDS PREVENTION AND 0.00 84.00 0.00 14.89 15.46 0 .00

IN-PE-10400 IBRD34980 1992 MAHARASHTRA POWER II 350.00 0.00 0.00 237.75 235.94 0.00

IN-PE-9888 IBRD34360 1992 POWER UTIL EFFIC IMP 265.00 0.00 25.00 50.27 75.29 50.29

IN-PE-9921 IDA23290 1992 SHRIMP & FISH CULTUR 0.00 85.00 48.51 23.98 67.30 13.83

IN-PE-9946 IBRD34700 1992 NAT. HIGHWAYS II 153.00 0.00 0.00 153.00 64.12 0.00

IN-PE-9946 IDA23650 1992 NAT. HIGHWAYS II 0.00 153.00 0.00 37.23 64.12 0.00

IN-PE-9963 IDA23940 1992 POPULATION VIII 0.00 79.00 0.00 63.83 49.06 0.00

IN-PE-10369 IDA22340 1991 MAHARASHTRA RURAL WS 0.00 109.90 0.00 28.76 32.28 0.00

IN-PE-9877 IDA22410 1991 DAM SAFETY 0.00 130.00 27.03 53.58 102.39 -1.64

IN-PE-9906 IBRD33340 1991 IND POLLUTION CONTRO 124.00 0.00 0.00 11.97 7.08 0.00

IN-PE-9906 IDA22520 1991 IND POLLUTION CONTRO 0.00 31.60 0.00 10.73 7.08 0.00

IN-PE-9958 IBRD33000 1991 AGR.DEV.I (TN) 20.00 0.00 0.00 20.00 17.87 0.00

IN-PE-9958 IDA22150 1991 AGR.DEV.I (TN) 0 .00 92.80 0.00 5.58 17.87 0.00

IN-PE-9988 IDA22230 1991 TECH EDUC II 0.00 307.10 51.37 101.05 136.62 32.54

IN-PE-9860 IDA21310 1990 WTRSH PLAINS 0.00 55.00 0.00 11.49 12.38 4.04

IN-PE-9882 IDA21000 1990 WTRSH HILLS 0.00 75.00 0.00 24.87 33.40 20.40

IN-PE-9940 IDA21330 1990 POP. TRG (VII) 0.00 86.70 22.74 2.26 28.47 -5.27

IN-PE-9965 IDA20760 1990 PUNJAB IRR & DRAINAG 0.00 150.00 4.72 21.37 24.50 5.79

IN-PE-9982 IBRD32370 1990 NOR REG TRANSM 485.00 0.00 0.00 200.24 200.23 0.00

IN-PE-9989 IDA21300 1990 TECH EDUC I 0.00 235.00 24.26 35.46 70.50 21.24

IN-PE-9869 IBRD30240 1989 NATHPA JHAKRI HYDRO 485.00 0.00 0 .00 158.57 158.56 0.00

IN-PE-9941 IBRD30960 1989 MAHARASHTRA POWER 400.00 0.00 62.67 42.64 105.32 -1.15

IN-PE-9973 IBRD29940 1989 STATE ROADS 1 170.00 0 .00 61.41 5.25 61.38 -.03

IN-PE-9990 IDA20080 1989 VOCATIONAL TRAINING 0.00 250.00 116.15 18.09 159.21 18.21

Total 6,.292.70 7,432.74 724.18 8,084.77 3,062.34 165.83

a. Intended disbursements to date as projected at appraisal minus actual disbursements to date or, if disbursement projections have beenformally revised, then formally revised disbursement projections to date minis actual disbursements to date.

ANNEX 9Page 3 of 4

ANNEX 9

STATEMENT OF IFC'sCommitted and Disbursed Portfolio

As March 31, 1998(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1964/75/79/90 MUSCO 0.00 1.08 0.00 0.00 0.00 1,08 0.00 0.00

1978/87/91/93 HDFC 40.00 2.29 0.00 0.00 40.00 2,29 0.00 0.001981 Nagarjuna Steel 0.00 .07 0.00 0.00 0.00 .07 0.00 0.001981/86/81/91/93/96 ITW Signode 0.00 1.55 0.00 0.00 0.00 1.55 0.00 0.00

1981/86/89/94/92 TISCO 4.80 15.37 0.00 0.00 4.80 15.37 0.00 0.00

1981/90/93 M&M .67 6.49 0.00 2.67 .67 6.49 0.00 2.67

1982 Modi Cement 3.79 0.00 0.00 0.00 3.79 0.00 0.00 0.00

1984/90/94 India Lease .87 .86 0.00 0.00 .87 .86 0.00 0.00

1984/91 Bihar Sponge 12.37 .68 0.00 0.00 12.37 .68 0.00 0.001986 EXB-City Mills .48 0.00 0.00 0.00 .48 0.00 0.00 0.00

1986 EXB-CECL .01 0.00 0.00 0.00 .01 0.00 0.00 0.00

1986 EXB-NB Footwear .19 0.00 0.00 0.00 .19 0.00 0.00 0.001986 EXB-Paharpur .07 0.00 0.00 0.00 .07 0.00 0.00 0.00

1986 EXB-STG .40 0.00 0.00 0.00 .40 0.00 0.00 0.001986 EXB-TAN .03 0.00 0.00 0.00 .03 0.00 0.00 0.001986 EXB-Wires & Fab. .04 0.00 0.00 0.00 .04 0.00 0.00 0.00

1986/92/93/94 GESCO 0.00 11.97 0.00 0.00 0.00 11.97 0.00 0.00

1986/93/94/95 India Equipment .49 .77 0.00 1.20 .49 .77 0.00 1.20

1987 Hindustan 6.20 0.00 0.00 0.00 6.20 0.00 0.00 0.00

1987/88/90/93 Titan Watches 1.29 1.03 0.00 0.00 1.29 1.03 0.00 0.00

1988/90/92 Tata Telecom 0.00 .10 0.00 0.00 0.00 .10 0.00 0.001988/94 GKN Invel 0.00 1.40 0.00 0.00 0.00 1.40 0.00 0.00

1989 AEC 12.45 0.00 0.00 0.00 12.45 0.00 0.00 0.001989 UCAL 0,00 .63 0.00 0.00 0.00 .63 0.00 0.001989/90/94 Tata Electric 56.17 0.00 0.00 0.00 56.17 0.00 0.00 0.001989/91 Gujarat State 8.77 0.00 0.00 0.00 8.77 0.00 0.00 0.001989/95 JSB India 0.00 1.21 0.00 0.00 0.00 1.21 0.00 0.001990 HOEL 0.00 .28 0.00 0.00 0.00 .28 0.00 0.00

1990 TDICI-VECAUS 11 0.00 1.59 0.00 0.00 0.00 1.59 0.00 0.001990/92 CESC 45.51 0.00 0.00 63.65 45.51 0.00 0.00 63.65

1990/93/94 IL&FS 23.25 3.11 1.81 8.00 23.25 3.11 1.81 8.00

1990/94 ICICI-IFGL 0.00 .30 0.00 0.00 0.00 .30 0.00 0.001990/95 ICICI-SPIC Fine 0.00 1.88 0.00 0.00 0.00 1.88 0.00 0.001991 BSES 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00

1991/93 Triveni 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.001991/96 VARUN 0.00 1.35 0.00 0.00 0.00 1.35 0.00 0.001992 Indus VC Mgt Co 0.00 .01 0.00 0.00 0.00 .01 0.00 0.001992 Indus VCF 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.001992 Info Tech Fund 0.00 .64 0.00 0.00 0.00 .64 0.00 0.001992 SKF Bearings 4.78 0.00 0.00 0.00 4.78 0.00 0.00 0.001992/93 Arvind Mills 0.00 17.10 0.00 0.00 0.00 17.10 0.00 0.001992/94/97 Ispat Industries 78.93 5.77 0.00 85.00 39.07 5.77 0.00 0.001992/95 Creditcapital VF 0.00 1.05 0.00 0.00 0.00 1.05 0.00 0.00

1992/96/97 NICCO-UCO 6.69 .50 0.00 0.00 1.69 .50 0.00 0.001993/94/96 IndoRama 20.31 11.98 0.00 8.13 20.31 11.98 0.00 8.131993/97 20TH Century 15.62 .80 0.00 3.38 10.62 .80 0.00 3.381994 Centurion Growth 0.00 2.39 0.00 0.00 0.00 2.39 0.00 0.00

ANNEX 9Page 4 of 4

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1994 Chowgule 14.65 4.58 0.00 23.72 14.65 4.58 0.00 23.721994 Crdcap Asset Mgt 0.00 .32 0.00 0.00 0.00 .32 0.00 0.00

1994 DLF Cement 8.80 4.94 0.00 12.75 8.80 4.94 0.00 12.75

1994 Global Trust 0.00 3.19 0.00 0.00 0.00 3.19 0.00 0.00

1994 Gujarat Ambuja 0.00 8.23 0.00 0.00 0.00 8.23 0.00 0.00

1994 Taurus Starshare 0.00 7.17 0.00 0.00 0.00 7.17 0.00 0.00

1994 TCAMC 0.00 .16 0.00 0.00 0.00 .16 0.00 0.00

1994/97 GVK 40.00 8.30 0.00 35.69 30.00 7.45 0.00 35.69

1995 Centurion Bank 0.00 3.87 0.00 0.00 0.00 3.87 0.00 0.00

1995 EXIMBANK 22.73 0.00 0.00 0.00 22.73 0.00 0.00 0.00

1995 GE Capital 12.50 5.00 0.00 0.00 12.50 4.39 0.00 0.001995 ISIC 0.00 .32 0.00 0.00 0.00 .32 0.00 0.00

1995 Prism Cement 15.00 5.02 0.00 15.00 15.00 5.02 0.00 15.00

1995 Rain Calcining 19.25 5.47 0.00 0.00 17.00 5.46 0.00 0.00

1995 SaraFund 0.00 6.48 0.00 0.00 0.00 1.10 0.00 0.00

1995/98 RPG Communicatns 0.00 11.25 0.00 0.00 0.00 11.25 0.00 0.00

1996 CVF Oil Gas-AL 8.00 8.00 0.00 0.00 0.00 0.00 0.00 0.001996 India Direct Fnd 0.00 7.50 0.00 0.00 0.00 1.84 0.00 0.00

1996 Indus 11 0.00 5.00 0.00 0.00 0.00 3.00 0.00 0.00

1996 Indus Mauritius 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1996 Moser Baer 5.70 .60 0.00 0.00 5.70 .60 0.00 0.00

1996 United Riceland 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1997 Asian Electronic 16.41 5.50 0.00 0.00 0.00 5.50 0.00 0.00

1997 CEAT 20.00 0.00 0.00 0.00 9.00 0.00 0.00 0.00

1997 Duncan Hospital 7.00 .91 0.00 0.00 0.00 0.00 0.00 0.001997 EEPL 0.00 .03 0.00 0.00 0.00 .03 0.00 0.00

1997 Owens Coming 25.00 0.00 0.00 0.00 25.00 0.00 0.00 0.00

1997 SAPL 0.00 .07 0.00 0.00 0.00 .07 0.00 0.001997 SREI 15.00 3.00 0.00 0.00 1.00 3.00 0.00 0.00

1997 WIPRO 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

1998 IDFC 0.00 15.46 0.00 0.00 0.00 15.46 0.00 0.001998 TCW/ICICI 0.00 10.00 0.00 0.00 0.00 1.50 0.00 0.00

Total Portfolio: 614.22 226.73 1.81 259.19 475.70 194.81 1.81 174.19

Approvals Pending Commitment

Loan Equity Ouasi Partic1996 CESC II -BLINC 0.00 0.00 0.00 37.00

1998 IL&FS (III)-RI 0.00 3.38 0.00 0.00

1998 IVCAAF 0.00 5.74 0.00 0.00

1998 RAIN CALCININ RI 0.00 .84 0.00 0.00

1995 SPIC-RGHTS ISSUE 0.00 .86 0.00 0.00

1997 WALDEN - MGMT 0.00 .08 0.00 0.001997 WIV 0.00 6.00 0.00 0.00

Total Pending Commitment: 0.00 16.90 0.00 37.00

ANNEX 10Page 1 of2

ANNEX 10


COUNTRY AT A GLANCE

POVERIY ad SOCIAL South Low.- Indba Ab fnoM Developmnnt diamond'

Population mid-1996 (millions) 943.2 1,264 3,229GNP per capfta 1996 (USS) 380 380 Soo Life expectancyGNP 1996 (bitions USS) 358.4 481 1,601

Aveag annual growth. 19,0-96

Population ?%) 1.7 1.9 1,7 G GLaborforce (Xl 2.0 2.1 1.7 GNP - Grossper v-" } t .. primaryMosat rewt Wtimato (latest year avaikabM since 1989) capita enrollment

Poverty: headDount index (% of population) 35Urban population (X of total populaton) 27 26 29Life expectancy at birth (yeMrs) 62 61 63Infant mortality (per 1,000 liv births) 68 75 69Child malnutrin (% of chiNkwte under 5) 63 Access to safe wabrAccess to safe water (8 of population) 63 63 53lIiteracy(%of popuaton age 15+) 48 50 34Gross primnary enrollment (X of schoo/-a g populafion) 102 98 105 -/ndia

Male 113 110 112 Low-income groupFoenale 91 87 98

KEY ECONOMiC RATIOS and LONG-TERM TRENDS

1975 1985 1996 1996Economic ratios'

GIDP (bilfions USS) 91.0 214.3 328.3 355.8Gross domestic investmentVGOP 20.8 24.2 26.2 26.5Exports of goods and services/GDP 6.2 6.0 12.1 12.0 Openness of economyGross domestic savings/GDP 20.4 21.1 22.7 23.1Gross national savhIgs/GOP 20.6 21.6 24.2 25.3

Current account balanceoGDP 0.0 -2.8 -2.1 -1.2 /lntwestpayments/GDP 0.3 0.6 1.4 1.3 Savings - InvestmentTotal debVGDP 15.1 19 1 26.9 25.2Total debt service/exports 13.1 22.7 26.9 22.6Present value f debtVGDP .. . 22.8 -Present value of deWbexports . .. 161.4 Indebtedness

i97645 1916-96 1995 1996 199746('verege annudl Rwb) - IndiaGDP 4.2 5.6 7.3 7.5 6.5GNP percapita 1.9 3.5 5.4 5.2 . Low-income groupExports of goods and services 3.9 11.5 31.6 7,5 10.3

STRUCTURE of the ECONOMY1975 1966 1996 1996

(86 of GOP) Growth rates of output and Investaent (%)Agriculture 40.5 33.0 27.9 27.8 30Industry 23.7 28.1 30.1 29.2

Manufacturing 16.7 17.9 19.7 20.1 15Services 35.8 38.8 42.1 43.0

Private consumption 70.2 67.8 66.8 66.4 9 9 9

General government consumption 9.4 11.1 10.5 105 G01 OGDPImports of goods and services 6.6 9.1 15.6 15.3

1976-85 1986-96 1996 1996(average annual growth) Growth rates of exports and Imports (%)Agriculture 2.5 3.6 -0.1 5.7 4eIndustry 5.3 8.6 11.6 7.0

Manufacturing 5.5 6.7 13.6 8.1 20

Services 5.1 6.7 8.8 7.4

Private consumption 4.5 4.8 2.6 6.8 General govermment consumption 6.5 3.9 5.1 7.2 93 94 soGross domestic investment 4.1 7.1 17.9 8.5 -20Imports of goods and services 9.1 6.0 17.3 5.7Gross national product 4.1 5.4 7.2 6.7 Exports 0 mports

Note: 1996 data are preliminary estimates. All GDP data other than sectoral value-added are in market prices.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

ANNEX 10Page 2 of 2

India

PRICES and GOVERNMENT FINANCE1975 1985 1995 1996

Domestic prices Inflation (%)(% change) 15Consumer prices .. 5.6 10.2 7.0Implicit GDP deflator -1.5 7.5 7,3 7.0 S

Government finance(% of GDP) rCurrent revenue .. 23.8 24.7 25.2 91 92 93 94 95 96

Current budget balance .. 2.2 1.0 1.3 -GDP def -CPIOverall surplus/deficit .. -11.0 -10.1 -10.4

TRADE1978 1985 1996 1996 F - _--

(millions US$) Export and Import levels (mill. USS)Total exports (fob) .. 8,793 32,311 33,638 5 ,,,o-

Tea .. 512 352 290Iron .. 473 515 484 40,000

Manufactures .. 5,640 24,540 24,749 30,000Total imports (cif) .. 15,957 43.670 46,121

Food .. 1,321 1,293 1,359 2:i iE m ilFuel and energy .. 4,054 7,526 9,679 roo _Capital goods .. 3,502 4,560 4,513

Export price index (1980=100) .. 98 104 103 90 91 92 93 94 95 94

Import price index (1980=100) .. 84 115 116 U Exports U ImportsTerms of trade (1987=100) .. 118 90 89

BALANCE of PAYMENTS1976 1986 1996 1996

(millions US$) Current account balance to GDP ratio (%)Exports of goods and services 5,650 12,773 39,668 42,556 oImports of goods and services 5.990 19,422 51,213 54,431Resource balance -340 -6,649 -11,545 -11,875

Net income -150 -1,552 -3,735 4,118Net current transfers 470 2,207 8,506 11,888 ICurrent account balance,

before official capital transfers -20 -5,994 -6,774 -4,105 3

Financing items (net) 20 6,542 3,050 10,095Changes in net reserves 0 -548 3,724 -5,990 -4

Memo:

Reserves including gold (mill. USS) 2,065 9,493 21,246 26,160Conversion rate (k>cal/USS) 8.7 12.2 33.5 35.5

EXTERNAL DEBT and RESOURCE FLOWS1976 1986 1996 1996

(millions US$) Composition of total debt, 1996 (mill. US$)Total debt outstanding and disbursed 13,708 40,960 94,858 89,827

IBRD 436 2,396 9,849 8,768 G AIDA 2,809 9,750 17499 17,616 6728 0768

Total debt service 822 3,532 13,346 12,667 .'

IBRD 89 313 1,713 1,514 /B

IDA 24 124 357 364 F 17616

Composition of net resource flows 28565 iOfficial grants 511 450 345 408 . COfficial creditors 1,260 1,424 -1,048 -163 1313Private creditors 83 2,277 589 -1,102 DForeign direct investment 85 106 2,133 2,359 2949Portfolio equity 0 0 2,471 2,775 23891

World Bank programCommitments 917 2,882 1.697 1,725 A -I6RD E -BilateralDisbursements 531 1,375 1,318 1,628 B-IDA D- Other multilateral F . PnvatePrincipal repayments 63 157 1,169 1,074 C-IMF G-Short-termNetflows 467 1,218 149 554

Interest payments 50 280 901 804Net transfers 417 938 -752 -250

Development Economics 11/7/97

ANNEX 11Page I of 12

ANNEX 11


BULK POWER TARIFF REFORM ANDTHE FRAMEWORK FOR ELECTRICITY TRADING IN INDIA

This note is divided into two main sections. The first section, paras. 1-32, deals with bulk power tariff reforms andthe framework for electricity trading in India, assuming that the reader is familiar with the sectoral context. Readers notvery familiar with India 's power system are encouraged to also review the second section, paras. 33-47, entitled SectoralBackground, which presents the key features of the power sector, and discusses the operating environment in which bulkpower tariffreforms andpower pools are being introduced.

The Challenge

1. POWERGRID was established to implement India's reform program for transmission and systemoperations. Along with the hardware - the coordination and control systems and transmission interconnections -fundamental changes are required in the way the power system was operated and how the electricity at the bulkpower level is priced and traded.

The Action Plan

2. A comprehensive study of bulk power and transmission tariffs and regulation was prepared in 1993-94,under POWERGRID I financed under a technical assistance grant from the Asian Development Bank (ADB)2. Therecommendations covered regional pool operating arrangements, interchange tariffs, generation tariffs, transmissiontariffs, and regulation applied to the operating arrangements and tariffs. The recommendations were offered as a"package", e.g. the various parts were intended to fit together so as to create a system of commercial incentives toachieve the general objectives. These objectives were to increase the efficiency of utilization of India's scarcegeneration and transmission resources and to improve reliability and security of supply. After review, consultationsand deliberations, an action plan was prepared and approved by the Ministry of Power in late 1994, and put intoimplementation in March 1995.

The Implementation Organization

3. An implementation organization consisting of a National Task Force (NTF), Regional Task Forces (RTFs)and various ad-hoc working groups, was established in stages. Subsequently, CEA established a special NTF unit tocope with the increasing work load. The original completion date of the action plan was October 1996.Implementation quickly fell behind schedule - reflecting the challenge of implementing fundamental reforns in afederal structure with a number of independent participants with conflicting interests and capabilities - and the keyelements of the action plan continued to be discussed and debated. The NTF finally took fundamental decisions inits November 1996 meeting, including: (a) the confirmation of availability tariffs for NTPC (fixed chargesapportioned on the basis of SEB shares/entitlements) and future IPPs, with the application of closely relatedscheduled and unscheduled interchange tariffs; and (b) the selection of decentralized dispatch by the SEBs, with theRLDCs coordinating regional and inter-regional operations, i.e. operating loose regional power pools, as theoperating mode for the regional grids, with (c) disputes settled first at the REB level and unresolved issues finallyby CEA. The NTF reviewed the progress in October 1997 and confirmed January 1999 as the revised target

The study was led and prepared by experts from ECC Inc., now with Barker, Dunn and Rossi Inc., with inputs fromNERA, all from USA.

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completion date for these actions, with the following phased implementation: (a) Southern region by April 1998, (b)Eastern and North-Eastern regions by July 1998; and (c) the Northern and Western regions by January 1999.

Trading under Power Purchase Agreements (PPAs)

4. Most SEBs are unable to implement new generation projects. Given the current financial difficulties andlack of creditworthiness of most SEBs, they have not been able to contract additional power supply for independentpower producers (IPPs) either - apart from a few cases, where complementary security arrangements, in most caseincluding a guarantee from the Government of India, have been put in place. Utilities in reforming states as a matterof policy choice do not even intend to build new capacity themselves. Once state power reforms have reached alevel of comfort satisfactory to the financiers of IPPs, reforming utilities are expected to be able to contract powerunder long-term PPAs. The share of bulk power purchased either from NTPC and other central generators or fromIPPs is therefore gradually increasing, and this trend will continue. In both cases, such purchases are taking placeunder long-tern PPAs or their equivalents, such as NTPC's bulk power supply agreements (BPSA). While BPSAsand PPA concepts had become familiar to most utilities, a fundamental change was required in their underlyingtariff structure.

5. All generating resources, State, private, and Central Sector, should be subject to the same form of meritorder dispatch, based on variable cost of the SEB plants and on the proven model of an availability tariff (AT).Such a tariff required modification of the existing tariff notifications for private generation and for Central Sectorgeneration. The Bank has previously expressed its concern that so many PPA were being negotiated which appearto have the effect of one-part take-or-pay contracts. Such contracts create further perverse incentives to achievingthe objective of dispatch on a minimum variable cost basis, merit order dispatch. The concern was that these PPAsmay prove to be costly to India in future years in the same manner that over incentivized cogeneration andrenewable energy plants are costing US retail customers billions of dollars in excess costs. The move to availabilityaddresses this major problem.

6. In summary, an availability tariff is a two-part tariff which obligates the buyer, or entitlement holder, topay for the fixed cost and profit margin on the capacity under contract without regard to energy production. Therationale is that it is impossible to predict how any generating unit will most economically fit within a system ofgenerating units for any period of time. The relative variable costs of units may change over time. Demand isunpredictable. Generating units will have operating characteristics such as minimum up times, minimum downtimes, ramp rates, time to start, start up costs which may make a unit with relatively low variable cost uneconomicto meet a given system requirement. Therefore the primary objective should be for the unit to be available when itis needed. The owner and operator should be provided with a contractual arrangement which rewards him forhaving the unit available and for complying with the system requirements in accordance with dispatch instructions.

Tariff Parameters

7. CEA is working out guidelines and norms on availability tariffs. After CEA completes the preparations,the next, possibly prolonged debate is going to focus on the parameters to be used in calculating the tariff rates.While the Bank would welcome increasingly demanding performance targets, they should be accompanied byincreasing rewards to those meeting them. For instance, if NTPC's new plants are to match IPP performancetargets, then the rate of return incentives should also be in place. And for its existing plants, higher normativetargets, if any, should come with a higher rate of return for meeting such targets - the Bank has repeatedly recordedits view that the current 12 percent return on existing NTPC plants is too low and effectively subsidizes the SEBsand their power consumers.

NTPC Tariffs

8. NTPC's current tariff notifications effectively result in NTPC power being charged to its clients under aone-part tariff. Charges are properly calculated separately for capital and other fixed costs and fuel and othervariable costs, but are combined in the final stages of billing, when determining the sharing of such costs among theclients of the regional plants. Fixed costs are fully recovered at a generation level, plant load factor (PLF), of about

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6,500 hours per annum or 68%. Current tariffs expire between November 1997 and March 1998, making 1998 anideal time-frame to introduce the new system. NTPC was initially quite concerned about the concept, but declaredin 1996 its preparedness to move to the new system and right now, NTPC is effectively mobilizing its regionalorganizations to implement them.

IPP Tarifs

9. Government notification on the introduction of availability tariffs for new IPP projects, awarded throughcompetitive bidding, was issued in June 1997. Tariffs for IPPs for which PPAs have already been finalized on thebasis of the earlier PLF (i.e. generation)-based notification, modeled after the NTPC structure (with higher returnsand improved incentives), are not expected to be renegotiated on this account alone. The treatment of other IPPprojects (those MOU projects which do not yet have PPAs) will remain uncertain, and also dependent on thepossible extension(s) of the deadline for their further consideration.

10. The retention of IPP projects with PLF-based PPAs will constrain dispatch flexibility by their clients SEBs.The states will have to live with the consequences (including costly out of merit order dispatch) of PPAs with take-or-pay or similar provisions already in place (unless the concerned IPPs agree to renegotiate to move to availabilitytariffs). Nationally this issue of existing PPAs might not be a major concern, as only a few PPAs have gone throughthe clearance process.

11. The proposed Hirma project being such a large project and a regional project - Hirma in fact supplies fivestates in two regions from a third region, an availability-based tariff would be highly preferable if not an absolutenecessity. The currently proposed tariff structure, essentially a take-or-pay base tariff and an incentive tariffcombining a variable fuel rate and an capacity element, is going to constrain dispatch flexibility (at base tariff areaof operation) and then artificially constraining generation (the one-part incentive tariff area effectively gives theclients a disincentive to dispatch the project compared to variable-cost based tariffs from other stations). Given thelow fuel cost and high efficiency, the base tariff and the take-or-pay requirement may not be that significant inpractice, but the incentive tariff may cause unintended dispatch problems.

SEB Generation Tariffs

12. As long as SEBs remain integrated utilities, it is not essential for the functioning of the regional powersystems for their generating units to have availability-based tariffs. But the SEBs will be directly affected by theunscheduled interchange rate (explained below). It is also necessary - in practice an absolute prerequisite - for theSEBs (along with NTPC) to change their staff incentives systems, from PLF incentives to availability-basedincentives. Along with attitudes at management level, PLF-based staff incentives are the most effective barrier tomerit order dispatch and improving efficiency in system operations. Under state power sector reforms, therestructuring of industry structures may create separate generation, transmission and distribution utilities, as is thecase in Orissa. Then it is logical and necessary to have power purchase agreements between the generators and theirclients and base them on availability tariffs. And one of the emerging entities need to be assigned the responsibilityfor system operations, inter alia to represent the state and replace the SEB in the REBs. In the case of Orissa,GRIDCO took over such responsibilities from OSEB.

Trading under Scheduled Interchange

13. The major part of bulk power would flow from the generators to their clients under long-term PPAs,on the basis of the proposed availability-based two-part tariffs. Scheduled interchange of power would,nevertheless, be expected to account for an increasing share in power supply of some (power deficit) SEBswhile some (power surplus) SEBs would be able to earn power sale revenues. Part of power surplus wouldcome from an SEB' s entitlement in various NTPC plants and IPP plants contracted under long-term PPAs. So farthe subject to scheduled interchange has not been extensively examined by the RTF/RTFs and has not become anarea of debate or controversy. And it should not become an issue at NTF or RTF levels, as scheduled interchangesshould be left for the trading partners to settle. The NTF/RTFs should limit themselves to the principles of


scheduled interchange arrangements and tariffs - and they were presented in the bulk power study on which theaction plan is premised.

14. While there are numerous viable arrangements, four basic types of scheduled interchange could beadopted, including standardized products with cost based pricing, nonstandard products with market based pricing,energy exchanges, and regional pool transactions. However, pricing should offer an incentive to scheduletransactions as opposed to not scheduling, e.g. unauthorized overdrawal. While it is recommended that the utilitiesshould be permitted a wide degree of latitude in the types of scheduled interchange which they transact, it is alsorecommended that CEA should establish a ceiling price in order to prevent potential abuse by one party of amonopoly situation. It is also emphasized that scheduled interchange should be priced on the basis of a two-parttariff if capacity reservations are involved. This will enable scheduled interchange to be integrated with merit orderdispatch based on two-part generation tariffs.

Unscheduled Interchange and Grid Discipline

15. Unscheduled interchanges are deviations from plant dispatch orders by generating companies anddeviations from import entitlements or agreed exports including scheduled interchanges by distributors(including vertically integrated utilities, most importantly SEBs). Generating companies can meet dispatchorders only by regulating the output of their plants. If they fail to meet the schedule, the deviations would have tobe covered by unscheduled interchange. In case they exceed the schedule, they would effectively be providingunscheduled interchange power. Distributors would have to manage their load in order to stay within entitlements(contracts). Integrated utilities such as SEBs have both options, to control the output of the plants or manage theirsupply, to minimize unscheduled interchange purchases (or to maximize exports at unscheduled interchange rates atsystem peak times). There is no need for separate schemes for dealing with generators and distributors, one andsame unscheduled interchange can and should cover both.

16. A unique feature of the new tariff system is going to be the frequency-based pricing of unscheduledinterchange (variations from scheduled generation by generators I drawals by SEBs). The unscheduledinterchange -(UI) tariff should have strong differences between peak and off-peak prices, i.e. between low and highfrequency unscheduled interchange rates. Peak prices / low frequency rates should be so high as to discouragedrawals exceeding entitlements (contracts) and simultaneously encourage high availability. AnNTPC/POWERGRID report from 1996 suggested a rate of Rs 3.0/kWh for frequencies at 49.0 Hz and below. Thisseemed rather low, not much above some IPP rates. Quite a few SEBs may consider it worthwhile to buy at this rate- and the desired impact of discouraging drawals / promoting load management and discipline may not be achieved.In the latest consultations led by CEA, rates as high as Rs 6.0/kWh were contemplated, before currently settling atabout Rs. 4.5/kWh.

17. Off-peak prices / high frequency prices should be set so low that most generators would find it unattractiveto generate beyond system needs and thereby contribute to India's unique phenomenon of high off-peakfrequencies. The NTPC/POWERGRID report suggested a rate of Rs 0.0/kWh, zero, for frequencies at 51.0 Hz andabove. In the latest consultations, this is being contemplated to start from 50.5 Hz. This should be a clear signal,generation over dispatch orders (in excess of system needs) at high frequency periods would result in a loss. Andelectricity would be available free of charge to those utilities that can absorb additional power at such times.

Implementation - how is the new Trading System designed to work?

18. Explained in a highly simplified manner, the new system is designed to work as follows:

(a) Each participating generator (including all central sector plants supplying more than one state andmulti-state mega power projects such as CEPA) will indicate daily, for the following day, theircapacity and energy availability. On the basis of such declarations, RLDC will advise eachparticipating utility of its capacity and energy availability from the system, with originalcontracts/entitlements adjusted for the declared availability of generators;

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(b) each participating utility (SEBs and their grid company successors) will indicate daily, to theRLDC (operated by POWERGRID) for the following day, their power requirements from theregional grid (i.e. over and above what they will generate themselves or purchase locally e.g. fromtheir dedicated IPPs or captive generators etc.) within their entitlements as per (a). In case thetotal of the above is still hort of total expected consumer demand in the state, each utility will haveto plan corresponding load management/curtailment and/or purchase from otherutilities/generators to overcome the shortfall;

(c) the RLDC will schedule the participating generation (including central sector and multi-state IPPs)for the following day and indicate the schedule for generation to the generators and scheduleddrawals of utilities;

(d) any utility drawing power would be charged as per the applicable PPAs (and scheduledinterchange arrangements, if any) and any generator supplying would be paid as per the applicablePPA, to the amount of scheduled drawals and generation, respectively;

(e) any utility and any generator deviating from the schedule would be charged or paid for thedeviations at the applicable rate for unscheduled interchange: (1) utility drawing over the schedulewould pay the UI rate. At times of low frequency, this could be as high as Rs 6/kWh; at times ofhigh frequency, this could be as low as zero, i.e. energy would be free. This should discourageoverdrawal at times of shortage and encourage use of electricity at times of surplus, in both cases,improve grid discipline; and (2) generator supplying over the schedule would be paid the UI rate.At times of low frequency, this could be as high as Rs 6/kWh; at times of high frequency, thiscould be as low as zero, i.e. energy would be free. This should encourage generation at times ofshortage and discourage generation at times of surplus, in both cases, improve grid discipline. (3)any utility drawing below the schedule would be paid at the UI rate and any generator supplyingbelow the schedule would be charged at the UI rate. Drawing less at a time of shortage wouldearn as much as Rs 6/kWh, supplying less would cost as much as Rs 6/kWh, promoting loadmanagement and high availability, respectively. Drawing less at a time of surplus would earnnothing and failing to generate up to schedule at a time of surplus would cost nothing;

(f) any combination of the constituents of a regional pool could freely enter into long/short termarrangements (scheduled interchanges) on a negotiated basis. Any combination of theconstituents of one regional pool through their respective RLDCs could also negotiateinterchanges with any combination of the constituents of a regional pool in other regions, subjectto capability of the interconnections to accommodate such power flows; and

(g) dispatch would take place at the state-level, by the SLDCs, by the concerned SEBs and their gridcompany successor. Even if the generation plant of vertically integrated SEBs would not haveavailability-based tariffs, dispatchers would be able to dispatch according to merit order, bycomparing the variable cost of the SEB plant, variable cost part of power they purchase from IPPsand NTPC, and the frequency-based pool rate. The various parts of the bulk power tariff andtrading reform package are designed to fit together so as to create a system of commercialincentives (and commercial discipline) to increase the efficiency of utilization of India's scarcegeneration and transmission resources and to improve reliability and security of supply.

Options for IPPs

19. As discussed in para. 18, multi-state IPPs will participate directly in the regional pool. Single-state IPPshave two basic options. They can either remain within the state systems and be dispatched by the SLDC - theconcerned SEB or grid company - or they can with the consent of the SEB/grid company and the RLDC, participatedirectly in the regional pool. In case they remain with the state system, they can still operate in the regional pool,but will have to coordinate with the RLDC through the SLDC. It is expected that over time, state utilities wouldreplicate the regional pool pricing and trading to generators in their systems. Once than happens, the distinction

ANNEX I 1Page 6 of 12

between a state-level IPP and a regional IPP, in terms of pool operations and operational flexibility, would diminish.Being able to directly operate in the regional pool may, however, retain its value as a more effective way to mitigatepayment risks, and can be expected to quickly become a standard feature in PPAs for major IPP plants in India.

Impact of State Power Reform & Unbundling

20. As the reforming states unbundle their SEBs into generators, transmission/grid operators, and distributors,the SLDCs - the new grid companies - they could replicate the regional pool pricing and trading in their systems, forboth the generators and the distributors, so as to be able to give them the same incentives and penalties - and pass ontheir own trading risk. In practice, this is likely to take more time and happen gradually, and only after someexperience has been gained at the regional level. Replication will have include the development of transparentarrangements how to share available power (from the state's own generators and the contracts in regional plants) incase of supply shortages among the distributors. As soon as a reforming state moves away from the initial gridcompany as a single-buyer model and allows distributors to buy electricity from other sources, such distributorswould have to manage their own purchasers as well, not just manage their intake within contracted levels. And theywill gain access to all the trading opportunities in the regional pool. The SEBs, other utilities and distributors inturn can offer the new frequency-linked tariff to their consumers, particularly large industrial consumers capable ofmanaging their loads to take advantage of the varying pool rates.

Harnessing Decentralized Generation including Captive and Renewables

21. The regional pool pricing and trading arrangements also facilitate the harnessing of decentralizedgeneration including captive generation as well as other decentralized options, such as renewables, as long as theSEBs/grid companies replicate the regional pool pricing and trading in their systems. The Ul-rate at low frequencyperiods is higher than the variable cost of most decentralized generators - in fact it would usually be higher than thetotal cost of many decentralized generation options. Once such a generator installs the necessary metering, thegenerator can enter into a simple scheduled interchange agreement with the grid company or a distributor(establishing the sharing of benefits for the client in avoiding paying the full UL-rate), follow the system frequency,and pump power into the state grid at the time of low frequency - at the high UI rate. India has very large amountsof captive generation, figures as high as 17,000 MW have been quoted by the Ministry of Power, and they areincreasing. If even a fraction of such large capacity could be harnessed to support and supply the grid a systempeaks, the impact would be significant. India has one of the most active renewable energy development programs inthe world. Many states have in the recent years introduced frameworks for wheeling power from renewablegenerators and buying their surplus generation. The UI-pool rate offers an alternative to renewable generatorsoperating mostly in captive mode, but interested in / capable of feeding the grid at peak periods.

Metering

22. POWERGRID has installed the required metering facilities in the Southern, Eastern, and North-Easternregions, and will install meters in the Northern and Western regions in the course of 1998. POWERGRID hasdesigned a special meter for the frequency-linked system, which record power flows and frequencies at 15-minuteintervals. The cost of the meter, developed by a local manufacturer in a collaboration with POWERGRID, is aboutUS$3,000. Any IPP or captive generator interested in joining the system, either at the regional level or if replicatedat the state level, will have to install such meters. The same requirement applies to distributors in unbundledsystems (assuming the grid company does not assume the trading risk). Reforming states installing new systemmeters in connection with unbundling should consider installing meters with these qualifications, to enable them toreplicate the regional pricing scheme in their systems whenever they are ready (see para. 20).

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Application in Inter-regional Trading

23. As stated in para. 18 (f), any combination of the constituents of one regional pool through their respectiveRLDCs can negotiate interchanges with any combination of the constituents of a regional pool in other regions,subject to capability of the interconnections to accommodate such power flows. Even spot arrangements arepossible. Whenever the UT-rates of two systems are different, in principle there is scope to reducing the cost ofsupply, until the Ul-rates become equal. A proposal has also been formulated to use such cost savings, thedifference of the two UI-rates, to finance the fixed costs of interconnections.

Regulatory Considerations

24. For the time being, CEA is the regulatory authority with the jurisdiction for regional and national gridoperations and tariff matters, and CEA is actively leading the current preparations for the introduction of bulk powertariff and trading reforms. Tariff-related functions are expected to be transferred to the Central ElectricityRegulatory Commission (CERC) in the course of 1999. The new state-level commissions that are emerging fromthe state power reform programs, such as the Orissa Electricity Regulatory Commission, need not - and as per theirunderlying reform legislations, are not - directly involved. However, they can be expected to quickly get involvedin cases where the state grid company or distributor mismanages its system operations and power purchasers,overdraws and buys power at the high UI-rates at system peak periods, and then tries to pass on the costs toconsumers. State Commission will also have to authorize the replication of the regional pool pricing and trading intheir systems, but it would be reasonable to expect that changes would be kept to the minimum, to ensureconsistency with the underlying regional system.

Investment Signals

25. The various parts of the bulk power tariff and trading reform package are designed to fit together so as tocreate a system of commercial incentives (and commercial discipline) to increase the efficiency of utilization ofIndia's scarce generation and transmission resources and to improve reliability and security of supply. The impactof the new system will also extend to investments. Regions with high UI-rates will obviously attract the attention ofgenerators, IPPs and public such as NTPC. The bulk of generation investments are, however, in the foreseeablefuture expected to remain linked to single creditworthy clients, contracting power under long-term PPAs. Thepossibility to mitigate payment risks by having an access to other potential clients through a regional power pool(para. 19) may nevertheless help secure project finance at better terms, if not determine whether or not an IPPproject goes ahead at all. In India's system of planning and clearance of power generation projects, formalizedleast-cost planning by CEA is expected to be remain, even if actual clearance is being increasingly delegated to thestates by raising the ceiling value of projects that require CEA's techno-economic clearance. In a complex multi-state system, the potential value of indicative national least-cost planning should not be underestimated.

Implementation - will the new Trading System actually work?

26. As even the above simplified presentation suggests, the emerging framework for power trading in Indiaprovides for numerous trading opportunities and complexities - there should be no concern that the system isrestrictive or in any way limits the potential for trading in India. Actual trading is likely to develop gradually, overtime, as participants become more familiar and better equipped to take part in the pool. This is a loose power pool,participation is voluntary, apart from deviations from schedule having to be settled at the UT rate. One SEB canchoose to limit its participation to that minimum extent. Another SEB or its grid company successor can activelypursue opportunities to reduce the cost of supply with scheduled interchanges and active management of drawalsdepending on grid conditions. Any generator can choose to just follow the schedule and be paid as per the PPA orcan try to actively seek opportunities to increase revenue by generating more at the times of shortage. The RLDCsand the REBs will have to develop rules and adjust them as experience is gained and problems and deficiencies areidentified.


27. Most regions are in chronic shortage of capacity and the outlook is for worsening before improving powersupply. What is the scope for trading in this very difficult supply/demand situation? Even at the times of shortage,and in fact in particular at the times of shortage, the new scheme is expected to bring a significant improvement ingrid discipline, through the Ul-rate, the frequency-linked pool rate. The Southern region is short of supply 24-hoursa day, but the other regions have varying degrees of hours of available capacity in the off-peak periods, and theEastern region has a temporary surplus most of the time. Therefore, there are opportunities for more active tradingmost of the time, and opportunities for inter-regional trading as well, as soon as POWERGRID develops adequateinterconnections so that power can be transmitted from one region to another. As the supply situation improves,over time in line with progress of state power reform, the scope and opportunities for trading improve as well.Prospects for harnessing captive generation are also significant (para. 21).

28. India is embarking on an evolutionary path towards new approaches in power system operations andtrading. The responsibility to facilitate that development and transition falls on POWERGRID. The responsibilityto take advantage of the new opportunities falls on each individual utility and generator. The system introduces,through the frequency-linked UI rate, commercial incentives and penalties to promote compliance with regionalsystem requirements such as compliance with scheduling and dispatch instructions. It is premised on theassumption that the various entities, SEBs, and Central Sector Agencies will honor their obligations - pay their billsand comply with rules for operation of the Regional and inter-regional networks. It is acknowledged that this is notalways the current state of affairs. The implementation of bulk power tariff reforms including the frequency-linkedpool rate for unscheduled interchanges will be a major undertaking and may become controversial e.g. due toconflicts between participants and/or payment defaults on unscheduled interchanges. Difficulties with failure tomake timely payments for services received is a fundamental problem which must be solved and the sustainablesolution, state power reform, takes time. But difficulties in collecting payments should not constrain developmentof tariffs which will improve system economics and quality of supply. Any rational system requires the parties tohonor their obligations. It is important that the participants commit to themselves and each other that they willembark on a new culture, timely payment of bills and acceptance of merit order and grid discipline principles.

Additional Observations and International Comparisons

29. Availability-based two-part tariffs are a conventional feature in structuring PPAs elsewhere, but have takena long time and intensive debate to be accepted in India. In contrast, the proposed frequency-linked pool rate for theunscheduled interchange, an integral component of the new bulk power tariff and trading system, is virtuallyunheard of outside India. The basic concept is a simple, radical out-of-the-box and highly innovative response to aunique problem, India's exceptionally wide frequency variations, ranging from below 48 Hz to above 52 Hz in asystem designed to operate at 50 Hz. The concept originates from the mid-1980s. Its proponent, Mr. BhanuBhushan, currently Director, Operations, at POWERGRID, has prevailed, and is about to see the scheme put intoimplementation, after persuading numerous skeptics and critics, among many others, the following:

(a) in 1991-93, the Bank's project team for POWERGRID 1, which after initial disbelief, endorsed the schemeto review by international experts in the bulk power tariff study;

(b) in 1993-94, the experts engaged for the study, after a similar if not stronger initial disbelief that the Bankteam's, came out with a package of bulk power tariff and trading reforms, essentially the one now about togo into implementation, which incorporated the frequency-linked pool rate;

(c) in 1995-96, POWERGRID's institutional development consultants, who once again, after extensivediscussions on the frequency-linked rate and its conventional alternatives (conventional administrativeprice systems or modern increasingly fashionable spot pool prices based on costs or bids), ended upendorsing the scheme and drafted recommendations to help POWERGRID continue preparations for itsimplementation; and

(d) the National and Regional Task Forces set up to implement the action plan, where after drawn-out debatesand reviews, the scheme received its final go-ahead signal and is about to be into implementation acrossIndia, starting from the Southern region.

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30. Several countries across the world, in Europe and Latin America, and a few states in the United States,have introduced or are seriously contemplating the introduction of, various forms of competitive generation poolsincluding a pool price set on costs or bids (which may or may not have a relationship to the underlying cost ofgeneration at any given time). In some cases, such as the Nordic power exchange, the majority of power is tradedunder PPAs and other bilateral arrangements, with only the minority on the spot; while some, such as the England &Wales pool, trades all power through the pool (with extensive use of financial hedging contracts). The introductionof such pool systems in India would be impossible today and will remain difficult for quite some time.

31. There are a number of obstacles to conventional pools in India, which can be broadly summarized into twofundamental factors. Both of these factors will have to be addressed before India or any of its power region cancontemplate a move to the more common approaches:

(a) the required system coordination and control facilities do not exist and will not exist until about 2002-2003at the earliest. Most SEBs do not have adequate load dispatch and SCADA systems to even operate theirown systems efficiently. Regional Energy Management Systems and the required communication systemsconnecting the utilities in real time are similarly non-existent. One of POWERGRID's corporate objectivesis to develop such facilities across India. The first is expected to be commissioned in 2002 in the Southernregion, followed by the other regions in rapid succession, in the 2002-2003 time-frame (assuming majorimplementation problems and delays are avoided in these highly complex projects); and

(b) SEB chief load dispatchers typically have neither the capability nor the authority to trade power or makebids to the pool. Such commercial orientation is lacking and will take time to develop, and will have to bedeveloped in the context of comprehensive state power reform programs and creation of state-level gridcompanies such as GRIDCO in Orissa.

32. India can move from the frequency-linked pool price to spot pool prices based on costs or bids, once thefacilities are in place (2002/2003 at the earliest) and once a minimum level of commercial orientation has beenreached. For the latter, India need not wait until all states have restructured their power systems, which might takeseveral decades. That step can be taken on a regional basis. One region can move on to the next stage of powerpools once all utility constituents in that region are ready. The Southern and Western regions may be ready tocontemplate such a step in the 2005-2010 time-frame, while Northern and Eastern regions may be ready only after2010. The frequency-linked pool scheme can not be used indefinitely. As soon as reforms in a particular regionhave resulted in a situation of adequate power supply and reserve margins, the frequency-link will no longer work,as frequency variations for the most part will have been largely eliminated. This suggests that the earliest switch-over periods speculated here will actually also be the deadlines for a given region to move on to spot pools of somekind. The life-time of the frequency-linked pool scheme is therefore about 10 years in the South and West, about15-20 years elsewhere in India.

SECTORAL BACKGROUND

Organization and Regulation

33. Responsibility for the electricity supply in India is shared constitutionally between the central governmentand the states. The Electricity Act of 1910 provided the initial legal framework that still today governs theoperations of licensees, that is, the existing private utilities. As amended, the Electricity (Supply) Act of 1948provides the overall regulatory framework for the sector, charging the Central Electricity Authority with developinga national power policy and with planning, coordinating, and regulating sector development. The 1948 Act createdthe state electricity boards (SEBs) and entrusted them with primary responsibility for public power supply as well asfor related state-level regulation. The SEBs were envisioned as largely self-governing entities empowered to settariffs and monitor licensees, but have effectively become government departments.

34. In 1991 India reversed its long-standing policy on private investment in the sector. Power was removedfrom the list of activities reserved for the public sector in the Industrial Policy Resolution, and the 1948 Act was

ANNEX I IPage IO of 12

amended to lift many of the regulatory disincentives to private investment in the power sector. India now allowsfull local or foreign private ownership of power companies and offers a thirtv-year license with the prospect oftwenty year renewals and increased financial returns. Provision is also made in the 1948 Act for private generatingcompanies and captive plants to sell power to the SEBs.

Central Sector

35. Since the 1970s, the Central Government has been actively involved in power development in India tocomplement the efforts of the states. The Government of India currently owns several generating companies(including the National Thermal Power Corporation, NTPC, and the National Hydroelectric Power Corporation,NHPC) and the new national transmission company and grid operator, the Power Grid Corporation of India(POWERGRID). These utilities were incorporated under the Companies Act.

36. The Ministry of Power approves tariff-setting principles for the centrally-owned entities. Tariff proposalsare reviewed by the Central Electricity Authority which then forwards its recommendations to the MOP fornotification. Tariffs are determined on a cost-of-service basis, and subject to meeting performance standards,provide the utilities an adequate return on investment. The availability tariff discussed in this note, will have to benotified by MOP for NTPC, and other central generators.

37. The Ministry of Non-Conventional Energy Sources administers the Government's renewable energyprogram, which seeks to meet the decentralized energy needs of rural areas to supplement conventional powersupply with such alternative energy sources as mini-hydro, biomass, wind and solar-power systems. TheGovernment provides budgetary resources for demonstration projects and promotes private investment throughvarious fiscal incentives, while the Indian Renewable Energy Development Agency (IREDA) provides institutionalfinancing.

State Sector

38. The states own the SEBs and State Generating Companies, which together generate almost 70 percent ofIndia's electricity supply and provide most of the distribution to consumers. The 1948 Act explicitly requires theSEBs to operate "in the most efficient and economical manner" and mandates that they adjust their tariffs to achievea minimum return, after interest, of 3 percent on net fixed assets in operation. States are, in fact, required to - butseldom do - provide subsidies to help the SEBs meet the minimum return requirement, by compensating the SEBsinter alia for low tariffs to residential consumers and for using the SEBs as administratively convenient vehicles foragricultural input subsidies.

39. For most SEBs, the statutory 3 percent after-interest return would cover operating costs and debt serviceprovided state government subsidies were fully paid on time and bill collection were reasonable. Because of theirpoor operational performance, low tariffs, and inadequate subsidies, however, most SEBs do not reach the Act'sstatutory minimum returns, and do not even cover their costs. Their aggregate operating losses are in fact rising,and operating deficits and capital expenditures are presently financed by borrowing or from state budgetaryresources. But while subsidization, flat tatiff rates, and unmetered supplies have undoubtedly accelerated theagricultural and residential use of electricity, many states are also suspected of substantially overstating unmeteredsales as a way to avoid reporting increasing system losses from non-technical factors and chronic under-investment.Instead of admitting increasing system losses including theft, many states prefer to report increasing sales toagriculture.

Private Utilities and Other Licensees

40. At India's independence private utilities and licensed local authorities together provided about 80 percentof India's public electricity supply. But when their licenses expired, most licensees were taken over by the SEBs, inline with the 1956 Industrial Policy Resolution. Today, only five of the private utilities originally licensed under the1910 Electricity Act remain: Bombay Suburban Electric Supply (BSES) and Tata Electric Companies (TEC) inBombay, Ahmedabad Electricity Company (AEC), Surat Electric Company, and Calcutta Electric Supply

ANNEX 11Page I Iof 12

Corporation (CESC) in Calcutta. Under India's state power sector reform program, new utilities will be establishedas the reforms progress, under state-level electricity reform legislation. The first is the Grid Corporation of Orissa(GRIDCO), the grid-company successor of the Orissa State Electricity Board, licensed under the Orissa ElectricityReform Act.

Grid Operations

41. Indian utilities are grouped into five regional power systems in the Eastern, Northern, North-Eastern,Southern, and Western regions of India. Interconnections between these systems are either weak or non-existent,but an ambitious program for the development of a national grid is under implementation. Plant availability andefficiency are generally low and system losses are high throughout India's power distribution networks. Frequentpower interruptions, uneconomic plant dispatch and wide variations in system frequency are common features in theoperations of India's regional power systems. Coordination and control systems, transmission system inter-connections and bulk power pricing, trading and regulatory reforms, are required to improve grid discipline andplant dispatch towards efficient merit-order operations.

42. As early as 1964 , the Government of India created Regional Electricity Boards (REBs) to bring the stateboards together with the central and joint sector utilities to coordinate system operations in their respective regionalgrids. It also entrusted the Central Electricity Authority with the development and operation of Regional LoadDispatch Centers (RLDCs) to support the regional boards. In 1991, an amendment of the 1948 Act strengthened theauthority of the Regional Electricity Boards by requiring generating companies and licensees to follow theirinstructions.

43. In 1993, the central government agreed to transfer the Regional Load Dispatch Centers and theiroperational responsibilities from the Central Electricity Authority to POWERGRID. The transfer program wasimplemented on schedule and completed in January 1996. The REBs have become the governing bodies of theemerging regional power pools, POWERGRID their operating arm as the operator of the RLDCs. POWERGRID,in cooperation with the SEBs, is implementing projects to develop modern coordination and control systems for theNorthern and Southem regions. It has also prepared similar projects for the Eastern, Western, and North-Easternregions, all expected to go into implementation in the course of 1998.

Electricity Supply

44. Power shortages today are conservatively estimated at about 10 percent of total electrical energy and 20percent of peak capacity requirements and are likely to increase in the coming years in several parts of India.Financial constraints kept generation capacity additions during the Eighth Plan (fiscal 1993-97) to less than 20,000MW, as compared to the original 48,000 MW capacity-addition requirement. The Ninth Plan (fiscal 1998-2002)projected capacity additions from conventional sources at about 57,000 MW. This, however, was acknowledged tobe highly unlikely to be achieved because of financing constraints and the long gestation period for power projectsin India, and has been scaled down to an official target of 40,000 MW. Even that is highly ambitious and difficultto achieve, pointing to worsening power shortages in the next few years. The rapidly expanding captive powergeneration - an expansive but readily available alternative to individual consumers to inadequate grid supply -makes it difficult to assess the true extent and impact of power shortages. The new regional bulk power tariff andtrading systems may be able to harness a significant part of such capacity to support and supply the grid at times ofsystem peaks, along with maximizing the realization of the true potential of the existing grid system.

Government Strategy

45. The Government of India recognizes that its economic growth and social development targets will bethreatened as long as the country's power supply constrains industrial development and the financial losses of thepower sector remain a burden on the public sector finances. Recognizing that actual investments remain constrainedby the lack of creditworthiness of the client SEBs, the Government presses the states to adjust their power tariffs andimprove the performance of state utilities. The Government supports states willing to reform their power sectorsinter alia by passing on external financing as fully additional to Central Plan Assistance (regular developmental

ANNEX I 1Page 12 of 12

assistance to the States of India), and by advocating sectoral reforms through national initiatives. The Governmentalso promotes financial discipline of the SEBs through its central agencies, while simultaneously using them toaugment power supplies, improve system operations and develop power markets in a national grid system, andprovide financing for state utilities and for decentralized renewable energy development. Other Governmentinitiatives include the promotion of private sector mega power projects and power imports.

Bank Support for Power Sector Reforms

46. Bank assistance is designed to improve the performance and finances of the power sector and attractdomestic and foreign private investments (through competition and/or under appropriate regulation) as the onlysustainable means to meeting the sector's long-term investment needs. The Bank's power program is focused onpromoting state power reform, directly by supporting India's state power sector restructuring program, and throughIREDA, NTPC, PFC, and POWERGRID. The Orissa and Haryana Power Sector Restructuring Projects, for whichLn. 4014-IN and Ln. 4271-IN were approved in May 1996 and January 1998, respectively, are the first two in aplanned series of Bank loans to support India's state power sector restructuring program. Dialogue on state-levelsector reforms and preparatory work on restructuring projects is underway in Andhra Pradesh, Karnataka,Rajasthan, and Uttar Pradesh. Several bilateral donors, including CIDA, DFID, KfW, OECF, and USAID, supportthe program, in close coordination with the Bank. The key elements of Bank-supported state power reforms in Indiaare: (a) commercialization and corporatization,; (b) distribution privatization; (c) independent regulatorycommissions; (d) tariff reforms; (e) demand-side management measures. In addition, the programs mustcomply with the Bank's standard environmental and social requirements.

47. India's power transmission and system operations are going through an extensive national restructuringprogram (see the main text of the PAD), in parallel with state-level power sector reforms. The Governmentestablished POWERGRID to implement this program, which is currently supported by the Bank under two ongoingoperations. Further financing is proposed under the proposed project. POWERGRID constructs and operatesIndia's regional transmission systems and provides transmission service to generators and state utilities. In parallel,POWERGRID is developing modern system coordination and control facilities (including load dispatch systems forstate utilities) and regional power pools. These facilities and regional electricity markets will enable generators andutilities to improve the efficiency of system operations and trade power under scheduled and unscheduledinterchange arrangements, supplementing power supplied under long-term PPAs. Over time, POWERGRID willinterconnect these regional systems towards a national power grid. A 500 MW capacity interconnection betweenthe Northern and Western regions is in operation. Interconnections between South and West at 1,000 MW capacityis being commissioned and East and South at 500 MW capacity is under construction. The next projects are inter-regional links from the Eastern region to the Northern region, of which (a) the first is a 500 MW HVDC back-to-back with AC transmission (the East-North Interconnector I); (b) the second is a 2,000 MW HVDC system (theEast-South Interconnector II) from the Eastern region to the South, and (c) the third a 3,000 MW HVDC systemfrom the Eastern region to the Northern region (the East-North Interconnector 11) and a 1,500 MW connection fromthe Eastern region to the Western region (the East-West Interconnector I). Bank financing is envisioned for theimplementation of these interconnectors.

ANNEX 12Page I of 2

ANNEX 12


INVESTMENT PROJECT ELIGIBILITY CRITERIA

Project Implementation Plans to be submitted by POWERGRID shall establish, to the satisfaction of the Bank,except as the Bank may otherwise agree, that an Investment Project for which the Bank approval is sought meets theeligibility criteria set out below:

Part I: General Criteria

I. The Investment Project is technically and operationally justified and has been formulated after taking intoaccount other alternative investments.

2. The Investment Project is economically and financially justified in the context of the POWERGRID'soverall least cost Investment Program and is included in such Program.

3. The appropriate governmental authorities of the Government of India have provided all requiredclearances/approvals including environmental clearances for implementing the Investment Project and this isdocumented in the appraisal report for such Investment Project.

4. The Investment Project has adequate financing and procurement plans.

5. The Investment Project complies with POWERGRID's Environmental and Social Policy and Proceduresand towards that end, POWERGRID has carried out an environmental impact assessment and prepared anenvironmental mitigation plan, and where applicable, a resettlement and rehabilitation plan or other developmentplan for adversely affected people, all in a manner satisfactory to the Bank.

Part II: Additional Criteria for the East-South Interconnector II

I . The proposed Talcher power project from which power will be evacuated through the proposed East-SouthInterconnector II under the Project:

(a) has been prepared in accordance with environmental and, resettlement and rehabilitation standardssatisfactory to the Bank; and

(b) if the power project is developed by the private sector, such power project has reached financialclosure.

Part III: Additional Criteria for the East-North Interconnector II and the East-West Interconnector I

1. The proposed Hirma power project from which power will be evacuated through the proposed East-NorthInterconnector II and the East-West Interconnector I under the Project:

(a) has been prepared in accordance with environmental and, resettlement and rehabilitation standardssatisfactory to the Bank; and

(b) if the power project is developed by the private sector, such power project has reached financialclosure.

ANNEX 12Page 2 of 2

Part IV: Additional Criteria for Other Transmission Projects associated with Generation Projects

I. Each proposed new power project having a capacity of 500 MW or more from which power would beevacuated through the proposed transmission Investment Projects under the Project:

(a) is technically and economically justified in the context of the Government of India's overall least-cost generation expansion plan;

(b) has been prepared in accordance with environmental and, resettlement and rehabilitation standardssatisfactory to the Bank; and

(c) if the power project is developed by the private sector, such power project has reached financialclosure.

Part V: Additional Criteria for Transmission Systems to facilitate International Trading in Electricity andTelecommunications Investment Projects

I. Such additional criteria as may be specified by the Bank for each Investment Project.

2. In respect of any Investment Project for international trading in electricity, such Investment Project and theassociated trading arrangements have been approved by the Government of India.

Annex 13

:NVIRONMENTAL A'- S,O N-D

P!OLICV g &. PROC-1!46

P:0LICPR0G .M Mffvr-'F" 7

- 1't

W. 41 r ._

ENVIRONMENT& SOCIAL MANAGENMENT-MPOWER GRID CORPORTION OF INDIA LTD.

(A GOVT OF iNDIA ENTERPRISE)

EiMISw'i!'.S,-98~~ - *:,

EXECUTIVE SUMMARY

BACKGROUND

1 Power Grid Corporation of India Limited (POWERGRID) was set up in October 1989 to transfer

power from Central Generating Stations and the surplus from State Electricity Boards to regional

Load Centres for eastablishment of Regional and National Power Grids. This has led to the

establishment and operation of a reliable, economical and secure system comprising of EHV AC

and HV DC transmission lines, substations, load despatch centres and communication facilities.

At present, POWERGRID operates approximately 27,000 ckt. Kms of transmission lines

comprising 400 KV, 220 KV, 132 KV AC transmission lines and HVDC.transmission system with

a total installed transformation capacity of 21,173 MVA distributed over 53 substations and

maintained at a persistant level of over 98% of line availability. POWERGRID stands as one

among the top six utilities in the worid whose line availability has always been maintained at

above 98% and it is today one of the largest power transmission organisation in the world. In

order to fulfil its goal of establishing a National Power Grid, POWERGRID plans to augment

regional grids, reinforce inter-regional links and set up modem co-ordination systems and contr;l

facilities. Majority of such projects are i-iPlemented with the assistance of various Multilatera

Agencies.

2 POWERGRID realises that power transmission projects may have some unavoidable

environmental and social implications, while implementing such a ambitious programme.

Therefore, POWERGRID is integrating environmental and social management procedures into

its corporate operations. POWERGRID has laid down guidelines for its approach towards these

issues in its Corporate Environmental and Social Policy and Procedures (ESPP). The ESPPs

outline POWERGRID's commitment to deal with environmental and social issues relating to its

transmnission projects lays out management procednres and protocol to address them. The

ESPP provides POWERGRID with a framework for identification, assessment and management

of environmental and social concems at both organisational as well as project levels.

I The ESPP has been prepared by POWERGRID with the assistance of Consultants -

Deveiupment Altematives - specialised in the field of environment and social issues. The

process of preparing this document includes desk research on the legal and institutional

framework, analysis of priority issues in the power transmission sector, consistency checks with

otperational directives of the Worid Bank and other Multilateral Agencies. There have also been

discussions within and outside POWERGRID for preparation of the ESPP.

4 The ESPP document comprises of four sections. Section I elaborates the environmental and

social policy of POWERGRID. Section II contains legal enactments, regulations, requirements of

Multilateral Agencies and their implications on transmission projects. Section III outlines the

etvironmental and social assessment and management framework guiding POWERGRID's

i

projects. Section IV details the ciganisational support required to operationalise POWERGRID's

ESPP In each section the detailed description is followed by a matrix which summerises the

issuesiprocess described

5 Besides POWERGRID's growing commitment to addressing environmental and social issues, the

document is evolved from experience gained in establishing 27,000 km of transmission lines

across the country and drawing upon the essencial norms and guidelines laid down by national

and intemational agencies.

POWERGRID'S ENVIRONMENTAL AND SOCIAL POUCY STATEMENT

6 POWERGRID believes that its guiding principles of Reliability, Security and Economy now have

to match with the rising expectations of a cleaner, safer, healthier environment of people, both

affected and benefited by its activijies. The key principles of POWERGRID's Environmental

and Social Policy statement are:

D Avoidance of environmentally and socially sensitive areas while planning project

activities

N' ,imisation of impacts when project activitiies occur in e .vironmentally and socially

sensitive areas.

O Mitigation of any unavoidable negative impacts arising out of its projects

7 POWERGRID considers this mission to be of the highest priority and will create and alter

organizational structures to absorb ano deal with environmental and social concerns.

POWERGRID recognises that most of its staff operate out in the field and thus staff development

will focus clearly on their responsibilities. POWERGRID wilt impress its environmental and social

concern upon contractors and others associated with its operations and activities and they have

to maintain the same. P:WERGRID's operations will be consistent with applicable national

regulations and intemational norms. This policy and resultant procedures will be subject to

constant review in tune with its guiding principles of prevention minimum disturbance and

innovative remedial measures.

SECTION 11: POLICY, LEGAL AND REGULATORY FRAMEWORK

it POWERGRID undertakes its activities within the purview of Indian laws keeping in mind

appropriate international obligations and guidelines of Funding Agencies. POWERGRID sees

its responsibilities under the present legal framework as twofold with regards to their projects.

Firstly. mandatory requirements under the law and the nuidelines of Funding agencies, and

secondly, Prescriptive requirements that influence management procedures addressing

eiivironmental and social issues.

9 Mandatory environmental requirements for POWERGRID at a national level include: Techno-

Economic Clearance by CEA under Electricity (Supply) Act, 1948; Forest clearance under the

Forest (Conservation) Act, 1980; Environmental Clearance under Environment (Protection) Act,

1986, for the projects located in two districts in the Aravalis viz., Alwar in Rajasthan and Gurgaon

in Haryana only. Mandatory requirements vis-a-vis Funding Agencies is an Environmental

Review/Assessment as required by World Bank OD 4.01. A transmission project is classified by

OD 4.01 as ?. type B project, which would normally require only an environmental review.

10. Mandatory Social requirements for POWERGRID at a National level Include Notification under

Section 29(2) the Electricity (Supply) Act 1948 ( public consultation component), S.42 of the

Electricity (Supply) Act 1948 read with S.16 (1) and S.12 (3) of the Electricity act for the

calculation of compensation for any damages and provisions under Land Acquisition Act, 1894

for Substations. Mandatory requirements vis-a-vis funding agencies are World Bank Operational

Directives 4.30 and 4.20 pertaning to involuntary resettlement and indigenous people.

11. The prescriptive framework includes Constitutional guarantees; Applicable legislations: Relevant

policies. At an intemational level, the prescriptive framewcrk covers intemational treaties and

convpntions signed and ratified by India.

12. POWERGRID's entitlement framework is based on progressive trends in Indian policies, with

respect to the inclusion of project affected people (PAPs), and the nature and extent of

compensation and rehabilitation. In order to provide a framework for the R&R process and to

supplement existing procedures an illustration of entitlements is shown in Table -I..

POWERGRID reiterates that displacement is not and will not be a major consequence of their

prolects. Irrespective of whether displacement occurs, the entitlement framework will be a base

for all its management procedures. The objective of framework is to ensure that PAPs are

ehabilitated and acquired assets are replaced Public consultation will proceed at every stage

from identification of PAPs to payment of compensation. The site group wilt be in close

interaction with the State Authorities during the implementation of the RAP. Although,

POWERGRID will implement the RAP, assistance of the State Authorities will be taken for

administrative services. Implementation will be planned, monitored and corrective measures if

required, will be incorporated in the Plan. Apart from the State Govemment, the PAPs, the

Village Leader including the Pradhans will also be consulted and associated during the

mi'pleinentation of the Plan. The corporate ESMD will evaluate the implementation of RAP on

regular basis.

13 A committee will be set up comprising of POWERGRID, representatives of local authorities

PAPs and Gram Panchayats or any well reputed person as mutually agreed with the local

authorities and PAPs. This committee will adress the grievances of the PAPs.

iii

Table -I P(OWEKc;Rl:; O f:lS ICF.I@ m.AL wFT I

TlPr,(F I.9.t'iu.FrMP IUTN'FIcIARic |E:NTITL'EMENT 01lT)ONN

at c xi .iS ngl n r.cw Ishc a k:,s n c-*oIr c5&i5cIi iNnse1itkwtO cset?tj

* \:ct c.ilitur;c IsiolI ............... I- it. shd lil. e.r s.roemarw vr v ( ritM,Od.c' atl.emna lati d 'tlequivilent pr duction plcolial s u hjcs1-In*mu trighut - sai.ulturc hsed PAP (r.ndered lasidlot, by pr,wjc.r cr t l rtic i

landhoeldinp that ar.. ncot e mrnically %ibi)be).mu ns wit, haftwr.4ifk 7. Ievv er. /ii) Indi rdua: ava-ilability (Siave Gvttio tIi-- s Vountarc atirsJ eti.ng raiesquano,S witlhi a radio. Of 25 kim

troximtum lintit is Land Mceiling limitcr caoh pa nmcn - rchabilitation wusnsarc'

(iii kwc-a! ,iandard Ibr min. ocsnoxmic land holding (il not lauinid h%oVwner) or stash paNmeniand reimrrburncsrit i;r une;crpdica.sc-

.h:-p~~~~~~~~~~~~~F+'hto l4stoutaet

-- th tAdtictnsh wtoman or |) Titkeh.kle, 4j J asho mc1aiatiUon - rthabilitlslto atistsUlc-- i

-.c, uI ight :.:htl siiuurnumet Air unexpired teias. transittcco allt uvIc calquc;alrct .t.sint. leachoider (ii) lnii i a., si3i , vl n stianldpum b ilaud pcrJic nunineoe

: 1 ih i,i..rstuAomwV!

t.". net (iii) familv (iii Cash crerpeinatitn for xtructun , lumnpsum pawnent mu.vaicni w I =a:. income finaliced bc land purtascec mmioec ro

rasi cd1e - rohabilitatiru a.esisart and transit,oo _i 'vn= nz ?:r

; lu-P br iht p titutions... il. alid fitie rw *orarv or (i) Uritl (i) cash ;nsrpensatlion - rehailitation a::sistamceq-

; -u1lthmi rigMs (ii! tinw in allowvancs quival6r to I year incotn . -< ru .. i-c i.iI I litK. leaseholder (iiI fU:nit bwW purchaw mind porcha

- qz:n.Ss ~ ~ ~ ~ ~ ~~66 iii nit (iii) Cash comptnaaion for stuurture- lternpsum payment equivalent w Iyewr inmome w, finalised by lau) purchase commstinac u, re-citablishstnunture - rchabilitation a..inarnce and transhion allosa.ce as per

________ cat~ov.6.Ae itvelilodittrade -cupatlon

Ul\akec Selfemplo--tmin

wn.: .ccuticwc culnturreial(li Individuwl li! paotRaVtmaor ,rmny; mns.me gentrating,ritcafprisc and irar.c-icc.c !:____________________ _._tAllcoatex equivaitent cc I ea! flncumto a !:nahlcd h\ ! J(

L:o 1.- I-t mumon reeaurt sanld atdthejesIt cuct .muuun p.4nrty euooms (itI Houws,htd (i) repaom t.C PRram-enni.i -r provisinescef ftnctsisnal cqui.lnoc. |

cl e ianvt isi amlnift Cmmunintv (ii accastoaquiValoalictnutis sctIvicr.ts(ii) Household

; is oafstimling trepritrvti adVilha -lid lifle (uF Family f or -lb caiegory udly the zvIivatoir will get -nimviisati.w, it na art

, l : i ltl I ii) Famjlt rate 1 vn7ls and /t vcrmt m; t;r fruit hearine it-I .. dhurng trusd hion of displsdIed

.hiel.o. r"aneu. T Ci) FanuINyunt o Runiicmccftranrcpcn t enuixalen cash:lanisntanau Cii, Farmlnut,n Iii j paymurit ttabs'finalised lv hOm LPCtibic.tisn (iiit Fanmlytunil j u i r- ansiiwt .c.mvaerials !

I o... in It ( ouuNimutlies! .u,st,eMeik. Snirs I I li Ciwmni (ce.xnsinmis n~ ~os~ht'sU cfucrcst ofF .......... ;t;r .n^,i.;r.n.c.t. 4b.. . ,Sl-

: I I . P,ffii . _.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. ......

tl-lw pru.pe.d riltllfrm.i frunaewurk wiU be app rabe oulv in tw ~ie eflaud acquidvieun tor .uhblutlion

: - i.:!:Pi.tl)ii pe t n:.ih csuacs.npeie..ctes. so wnrui.cuc, icnh. irndia0 V.)ti m Rv, i-t1a,tcc el1cc.nc..c .4 nt IWE,L' Clt::.,i.4i cccli:::1 .sicliisicOtc .i cip p. bbs s'* itc rctshaitcr.occve:snau icar asod .-tlr eIe.scsorses c. s.. 1s lr ' ct" c 3\1:r0 nt ec) mal ':3-':.. ccl

i:. ,*,i,.e: "

is

SECTION Ill: POWERGRID'S ENVIRONMENTAL AND SOCIAL ASSESSMENT AND

MANAGEMENT FRAMEWORK

14 In keeping with its commitment to quality systems, POWERGRID has integrated its responsibility

towards environmental and social issues into its project implementation through a carefully

designed set of management procedures.

15 Over the years, POWERGRID has evolved a project cycle which systematically outlines

activities to be undertaken at each stage of a project. POWERGRID's project cycle forms the

operational framework through which Environmental and Social issues are addressed. Key

milestones in POWERGRID's transmission projects: project conceptualisation; planning;

Pnprovals: design and tendering; mplementation; operation and maintenance are shown in

project cycle. It may be noted that environmental and social concems are addressed from the

project conceptualisation right through operation, maintenance and review. Transmission line

routes are identified during project conceptualisation while sub station sites are identified during

project planning. It is the experience of POWERGRID that envirormental issues are

predominant for transmission lines while social issues are predominant in the case of Sub

stations Key milestones in POWERGRID's transmission prole - 5 are:

I. Pruject Conceptuaiisation1 Prq,et kdentifrcation2 Environmental & Social Screentng and Scoping3 Feasiblity Studies4 Preliminary Approvabs ( Intemal Management, CEA and FA's Appraisal)

I. Project Planning1 Reconnaissance & Preliminary Survey2 Environmental Assessment & Management Planning3 Concurrence of ConsItitents

ll. Project Approvals1 Preliminary Public Investment Board (Pre-; S) Recommendation2 Public investment Board (PIB) Recommenuabon3 Funding Agencies (FA)4 Cabiret Committee on Economic Affairs (CCEA) Approvals Govemment of indiq (GOt)

V. Design & TenderingI Detaided Survey2 Social Asessmert & Management Planning3 Design. Estimates & Finalitation of Specitications4 Tender, ig & Awiard of contract

V. Project ImplementatIon1 Checkc Survey

Execution of EAMP and SAMP3 Tower Erection & Stnnging4 Sub-Station Construction5 Testing & Commissioning

VI. Operation & Maintenance1 Gdnd Operation2 Preventive Maintenance

VII. Protect ReviewI Monthly Revw2 Annuail Review

16 POWERGRIDs experience from managing 27,000 Ckm lines criss-crossing the length and the

hreadlh of the country have identified typical issues that could arise in transmission projects.

When compared with generation and distribution projects, issues arising in transmission line

projects are relatively insignificant. The inherent flexibility of route selection of transmission lines

V

enables POWERGRID to avoid environmentally and socially sensitive areas

17 POWERGRID's experience in managing and dealing with environmental issues is reflected in

Table 3.2. POWERGRID try to avoid orchards, plantations and forests in the course of line

routing through studies of altemative routes. If inevitable, care is taken to route the line through

a path of minimum disturbance. Most of the towers are located, by default, in agricultural land in

an attempt to avoid environmentally pristine areas and human habitation.

POWERGRID takes into consideration the following points while routing its transmission lines:

- the route does not involve any human rehabilitation- the route does not affect any monument of cuttural or historical importance- the proposed route does not threaten the survival of any community, especially tribal

communities- the proposed route does not affect any public utility services like play-grounds, school

and other estabiishments, etc.- the line route does not pass through any sanctuaries, National park, etc.

1 8. POWERGRID uses manual stringing in thick forests and on slopes whenever possible to

minimise damage to the environment. However some lopping of canopy and clearing of ground

vegetation is inevitable while stringing. POWERGRID m !igates damage by allowing

,generation along the ROW, except in one strip of 3 meter width, which is kept clear for

maintenance. POWERGRID's experience of 27D00 Ckm has shown that a chararteristic

transmission line project is about 1000 Ckm in length. Out of this, 6% (about 60 Ckm) would be

forest areas (involvment of forest may varies depending upon the location of the project) and 1%

(about 10 Ckm) would be plantations.

19 POWERGRID has incorporated the best tecnnology practices in an attempt to deal with

environmental issues. In landslide prone areas. POWERGRID designs tower bases and

riveutnents that prevent soil erosion near the tower. POWERGRID has also designed special

towers for wetlands, coasts and riverbeds. Unavoidable environmental issues that could occur in

a power transmissicn project, and to minimise, POWERGRID takes mitigative measures which

are shown in Table II.

20 Social issues associated with transmission projects are chiefly related to land acquisition carried

ouit for substation sites. Again, POWERGRID will exercise flexibility in siting substations.

POWERGRID has demonstrated, its trustworthiness and capacity to build safe towers at railway,

tiigttway and other crossings. As far as possible, POWERGRID plans and conducts its

constrtuction activity after the harvests to avoid damage to crops. In case damage to standing

crop is unavoidable. POWERGRID provides compensation at market rate for the same.

POWERGRID ensures that hazards due to fires are non-existent by adopting high standards of

safety

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21. POWERGRID try to avoid Resettlemnt and Rehabilitation (R&R) in all its projects by siting

substations on govemment land as far as possible. In case rehabilitation is totally inevitable.

POWERGRID addresses R&R issues arising due to land acquisition through its R&R Policy.

POWERGRID ensures proper valuation of land, assets, compensation for each category of PAPs

and ininimisation of lengthy cumbersome procedures. Again, POWERGRID will exercise

flexibility within a transmission project for siting substations. POWERGRID's experience from its

past fifty five substations indicates that a typical substation requires an area of 100 to 150 acres

of land. Of this about 50% is usually private land and 50% govemment land. The landuse of this

area would usually be 70% agriculture and 30% wastelands. The land acquired would be owned

by 3. -50 persons. Approximately 20-30 lessees would be involved, often with informal and

uLnrecorded lease agreements. Hence, projected affected persons (PAPs) could lose agricultural

land and their livelihoods. Till date, POWERGRID has acquired only one homestead for its past

fifty five substations. POWERGRID enhances opportunities for marginalised groups through the

RAP and IPDP.

Table n: POWER6RIDR s Environraental d Social Mitigation MeasuresPotenbat Inpacts Mitigatory Measures

1 Opening up df canopy in Natural * POWERGRID aviods envionmentaity sensitive areas such as wild lancds asFol ests far as practicable whie seiecting ts ROW.

2 Lopping of tree * To minimrise camage b vegetation and habitat fragmentation, POWERGRID3 Habdtat Loss utiises hand easing and transporraton of tower material by headloads into4 Vegetatlon damage forests5 Habnat fragmentation * POWERGRID maetis only a 3m wide strip for O&M and allows for6 Edge effect propagating generalist renertion of vegetation in the other two strips and als. ceneath the

speces transmission kie to wold habitat fragmenzation and edge effect.7 Increased access to wild lands * POWERGRID does not create any access roads or paths during constructiona PalhslAcces.s roads actrit but ubtulse exising paths and fied bunds for movenent of material.9 Run of f and sedimentabon from

grading of access roads1 Chemical conarmination from * POWERGRID does ri use chemicals for forest clearenc_jROW maintenance

chemical maintenance techniques * POWERGRID does nirt use PCB8s in its electrical eq.jlpment. As a cautionary2 PC Bs in electncal equipment measure. POWERGRID has arranged for studies with National Grid Company,

U.K for sampling of existing equipment and creation of a PCB managementplan if necessary

1 Change in tanduse and population * POWERGRID does not acquire land for its transmission towers.relication duie to towers POWERGRID pays compensation for crop loss and darnage caused dunng its

2 Change in landuse and population activities. POWERGRID allows regeneration and cuttrvation beneath the towersrelocation ftrr substations and tines.

3 Induced secondary development . POWERGRID avoids populated UrbarnRural areas tre=st pbantations for tsduring construction substation as far as poible. If unavoidable POWERGRID pays compensation

on the principle of replacement. issues of R&R are addressed through isSAMP

. POWERGRID operations are shortlived and do not induce secondarydeveloments durnng construction.

1 Avian hazatrs from transmission lines . POWERGRID avoiks nesting sites and crucal bird habitats by careful routeana lowerS selection The suspeon towers are provided with bird gaurds to prevent any

2 Ail c- lft haza -is from tansmrssion avian hazardslines and towers . POWERGRIO pro .des aviation mariers, night lights for easy identification ofImpaired curural and aesthetic towers

resoufci.s . POWERGRID selects best possible designs and support structures for4 Health and safety transmssion owers

. POWERGRID tines do not cause any hazards to health ar d safetyS FPa Hazaids POWERGRID uses fthe best International Standards in technology6 Poilution . POWERGRID uses equipment of latest technoiogy in rts transmission lines to

prevent fire hazards.. Not Applicable

22 POWERGRID win consult the public and the local authorities on all socio-ecotiomic issues that

arise from its project activities. POWERGRID uses the best possible tower designs to avoid

unaeslhetic intrusions on the landscap,> POWERGRID's substations often provide feasible

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infrastructure facilities to nearby villages. Unavoidable social Issues that could occur in a power

transmission project, and wherein POWERGRID shall emphasise careful management are:

rransmission Unes

* Temporary disturbance during construction and erection of transmission towers.* Loss to crop.* Change in land prices* Aesthetic appeal of an area* Temporary loss of access to Common Property Resources.* Temporary change in land use intensity.

Substation

* Lops of livelihood due to acquisition of prvate agricultural land.* Loss of common property resources due to acquisition of revenue land.* Loss of homestead.

23 POWERGRID places great emphasis on efficient management and quality service by

addressing Environmental and Social issues as an integral part of its project cycle(Table-

ill). POWERGRID is also committed to undertake appropriate environmental and social

assessment for its projects so that negative impacts are effectively minimised and

mitigatory measures are developed and put into place.

Table-Ill: Environrmental & SocW Assessment & Management of a typl POWERGRrD Transrission Project

-Milesm'nes ProI sPruductlDecislonL. Project Conceptualisation1 E 6 S. Scr. & Scop.(TLs) . Screeni*g and Scoping of Transmission Lis from E&S . E & S sr. & scop. documents

peIpecxrtpe as part of FR2 E & S approval * Subnit FR (with E&S screenng & scoping) to Internal Mgmt. . Internal Mgmt. Approval

* Submit FR (wth ESS scr. & scop. details) with Internal Mgmt. * Conditionl TEC Clearance byapproval to CEA CEA

* Submit FR (with E&S scr. & scop. details) with Internal Mgmt. Concurrence of Funding____________________ approval for Le-appraisal by FA Agencies

_ t _ nn_n'11 ET .,c& Scop.(SS) . Screen and scope Sub-Station sites from an E&S * E&S. Scr. & Scop. docs. (SS)

persetve2 Env Assessment & Mgmt. . Transnission Uines - Forest Arsas;Other Areas * EnvAssessment Mgmt plan

Planning * Sub-Stations3 Forest Clearance * Submit Forest Proposal to State Government . Final Forest Clearance by

. Forest Proposal to MoEF for conditional approval MoEF

. Forward Compliance report by State Govt. to MoEFIll. Project Approvak1 GOI Authorities T Submit FR (with EAMP and soc. sr. & scop. details) to Pre- * EAMP aid Soc. Scr. & Scop.

Approvals PIB. PIS and CCEA for approvals approved by GOI2 FA Concurrence . Submit FR Iwith EAMPand soc. scr. & scop. details) to FA. . Concuffrre by FAIV. Detailed Design & Award1 S x Assessment b Select and appoint suitabk agency for soc. assessment & . Agency appointed for SAMP

Mgrnt planning mgmt. planring, If required SAMP* SAMP for Tis and SS

2 Concufrence of FA for * Submit Soc. assewment & Mgmt. plan (with Internal Mgmt. * Concurmrece of FA for SAMPSAMP approval) to FA for concurrence

3 Consultation for * Consult Autnonsed Agencies for env.Mgmt. work . Autnised AgenciesEnv Mgmt. & Award of . Select and award Soc. Mgmt work to appropriate agencies Consd to execute EMSoc Mgmt. work through competitive bidding, if necessary . Agencies appointed to execute

SM worksV. Proiect Implementation1 Eecution o EM works * Execute Env. mt tworks * Env.Mgmt measures executed2 E4ecution of SM works Execute Socra Mghtit. works . Soc. Mgrt. measures

executed__VI. Operation & Maintenance1 Env & Soc. Monitoring Monitor EAMP measures | Periodic menng reports

I . 'nitor SAMP rmea s IogVII. Pr, ect ReviewI Anwal ESS Review i Review and report on E!S performance of project | Annual emn. & soc. revie

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24. Environmental and Social Risk Assessment wil be a vital part of POWERGRID's environmental

and socint management strategies. POWERGRID's risk assessment process-will Identify existing

risks and forecast potential risks in its power transmission projects. POWERGRID will evaluate

these risks both qualitatively and quantitatively and will also compare and prioritise these risks.

The risk assessment process will provide an informal, scientific basis for Cost Benefit Analysis. In

Ihis way, POWERGRID will strengthen the selected management options, and will provide

development without unduly harming humans or the environment

Table IV: POWERGRDRS Eavlon_ital and social Risk Maqeweg,t FrameworkMilestone Oalct Procs1. ProjectConcptualisation to idetify E&S ibi - Uwough E&S scn and and

Risk IdeDlcaton2. Proec.t Planning to Chumotenee ,mk Aniym of identified hm umg worst case alysis

Risk Charactns orion -If -uIebIIe k lrdendfle, evkuton if sfficient Info. available- Anas of Wlo. to chdacrie risk and make managemnt decsions

3. Project - to be praaed for - Sdi ple acst d Pof to sare and handle Iabilit via ieralImpiementetion occwrence of ris in m_,agit and via sRisk preparedness are of unaetntyI

4. Project Operation - to mate - unautsimwronenta an soci_ andaysiand Maitamnce to minwrie - Prepwo a tdk manage taegisRisk Management occctence of risk _

ORGANISATIONAL SUPPORT STRUCTURE

25 To ensure qualiiy POWERGRID sets out procedures and provides a work culture that

encourages total involvement of all its personnel. POWERGRID will further strengthen

organisational systems to enable effective implementation of the ESPP. POWERGRID has

consciously adopted a strategic environment within its organisational structure that is marked by:

* A synchronised system of functioning coordinated by a Corporate Planning and Corporatemonitoring group which monitors all activities in the organisation.

* An emphasis on an intradepatmental approach to all projects, delineation of departmentalresponsibilities and the delegation and decentralisation of authority resulting in a fastresponse and quick adjustment to change.

* A commitment to provide at all time the best possible time bound quality service in all areasof its operations.

26. POWERGRID's support to the ESPP is evolved along these principles. To ensure effectiveimplementation of its ESPP, POWERGRID will focus on:

* Strengthening the implementation of the ESPP by redeployment of appropriately trainedpersonnel at key levels

* Reinforcing in-house capabilities by working with specialised extemal agencies.

* Reviewing progress of the ESPP intemally or hrough extemal agencies.

27. POWERGRID's operations are divided into six regions. The regions consist of several Divisional

headquarters (DHQs) to oversee transmission projects: and maintenance of transmission lines

and substations. DHQs report to Regional Headquarters (RHOs). RHCs have overall

responsibility for construction, operation and maintenance of transmission systems apart from

providing necessary support services.

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28. At the Corporate level, POWERGRID already has in place an Environmental management

Department (EMD) that coordinates all environmental activities related to a project from

conceptulisation to operation and maintainance. Apart from this, the EMD interacts vith various

Multilateral Agencies and the MoEF for the environmental/forest clearance of all its projects. The

social components of a project are addressed by the Human Resources Management

Departement. POWERGRID will further enhance the capability of the EMD by integrating social

management thereby redefining it as the Environmental and Social Management Department

(ESMO). POWERGRID will redeploy the required number of personnel with appropriate

training, to the ESMD to reinforce its capacity

29. At ils Regional Office POWERGRID will create a Environmental and Social Management cell

(ESMC) to manage Environmental and Social issues and to interface between ESMD at the

Corporate level and the Divisional Headquarters. POWERGRID till deploy required number of

staff with required training to the Environmental and Social Management cell .

Table V: Responsibility Allocation ranework for the Environental and Social Assessment and ManagementProcess

I Responsibility

Milestones output InternalPrepfafoivExe. I Review

i. Pect Conce tuailsat onI E&S arprovals (TLs) * E & S scr. & scop. documnents as pwt * RHO * ESMO

of FR . DHQ Engg. DeDt2 Env & Soc. approval . Intemal Mot. Approval * ESMO ESMD

* Corp.Pbg. Dept. * Corp.Plg. Dept.. Conditional TEC by CEA * ESMO * ESMD

. Corp.Pig. D0. . Corp.Plg. Dept._ Concurrence of FA . Corn Pig. Dor. * COrp. Pig. Dt.

It. Pioct PlanningI E&S Scr. & Scop.(SS) ! E & S scr. & scop.docurnents (SS) *. RHQ OHO * ESMO

_ * .................................... Ext. Agy (if reqd.) . Engg. Dept.

2 Env Assessment & * Env. assessment Mgmt. plan * RHO * ESMDMgmt. Planning * OHO

3 Forest Clearance . Final Forest Clearance by MoEF * RHO. DH0 ESMO. F0Ill. Project Approvals _ __ _=_..

I GOi Authonties . EAM and Soc. scr. & scop. by GOI * ESMO T.ESMoApprovals Authorities * Corp. Plh. Dept. Corp. Pig. Dept.

2 FA Approvals * Env and Soc. scr. a scop. by FA . ESMD ESMD* Corp Pb. Dept. Car. Pb. .De

V.Detailed Design & Award1 Sor Assessrnent & . Agency appointed tor SAMP (if * ESMO * ESMD

Mgmt Planning necessary) Cont. Ser. C cont. Ser.* SAMP . RHO DHa Legal Dept.

Ext. Agv (if reqd.)2 Concurrrnceot FA * Concurrence of FA for SAMP . Corp. Pig. Det * Corp. Pig. Dept.3 Consuataion for EM . Authonsed agencies consuted to * RHQ . ESMD

works s Awardi of EM execute Env. Mgmt. wors |. DHQ Legal Dept.& SM Contracts I. Agencies appointed for SM works I Cont. Ser

V. Protect hiplerrentationI Execution of Env. * Env. Mgmt. measures executed . RHO . ESMD

igmt. Works * DHMI Authorised agency

2 Execution oa Soc. Socr Mgmt. measures executed . RHO * ESMOMgmt. Works * DHO . RHO

* Ext. Agy (rl read.)VL operalion & MaintenanceI Env & Soc Monitoring Penodic montonring reports * ESMO. * ESMD

I . _ . I * RHO IDHQ Ivn. Project Review1 Annual E&S Review | Annual Env. and Soc. review report | ESMO

Ext. aud. (if re d.)x

30. At the Divisional Headquarters level, POWERGRID will make the head of the division

responsible for implementing the ESPP. POWERGRIO will deploy pesonnel at appropnate

ievels of the organisational hierarchy to effectively execute the ESPP. They will be given all

relevant training and will form the Environmental and Social Management team (ESMT).

31 Although POWERGRID has already incorporated environmental and social management in all its

operations, POWERGRID recognises that there is scope for improvement to match the

Intemational Standards. In order to achieve this, the ESMD, ESMC and ESMT will be

familiarized with the ESPP thereby facilitating its implementation. The expertise required to

implement the ESPP is shown in Table V. The ESPP has to be intemalised by the other

departments (viz. engineering Cdepartment, corporate planning, legal and contract services). In

order to facilitate the effective functioning of the ESPP, POWERGRID has designed a training

plan which will be implemented by the Human Resource Department within the next two years

with the assistance of renowned environmental and social institutions in India.

NATIONAL CONSULTATION

32 As part of the prucess of developing an Environmental and Social Policy and Precedures

(ESPP), Power Grid Corporation of India (POWERGRID), organised a National Co-sultation on

12th June'97. This was probably the first time in India that a public sector undertaking

organised a National Consultation to obtain feedback on its operations with specific emphasis on

environmental and social concems.

33 The process of cosultation started with information to public through public notice published in

leading National dailies followed by formal invitation letter from POWERGRID's Chairman &

Managing Director to selected invitees. More than 150 participants from govemment, academia,

NGOs, project affected persons (PAPs), media and concemed citizens participated in the

National Conultation on POWERGRID's ESPP.

34 Chairman and Managing Director, POWERGRID in his Inaugural address invited all the

participants for their constructive feedback during the ensuing consultation/discussion and also

at later stage. It was followed by an audio-visual presentation on Powergrid Operation for the

helter understanding of participant. ESPP was presenied by AddI. General Manager.

Environment and Social Management Deptt. foi,- :*ed by discussion and interaction between the

participants and POWERGRID panel members about the technical aspects of Power line andJ

the proposed Evironment Management and R&R measures.

35 Most of the participants commended POWERGRID for the initiative taken to organtse such a

consuiltatioin which will bring much needed transparency in their operation. The Seminar

concluded with the address by Chairman and Managing Director. POWERGRID who

ieiterated, POWERGRID's commitment to its environmental and social respolisibility and has

also emphasized that the corporation is always open to opinions, clarifications and suggestions

for improving its operations.

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